S. Hrg.

105820

USE OF MASS MAIL TO DEFRAUD CONSUMERS

HEARING
BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL SECURITY,

PROLIFERATION, AND FEDERAL SERVICES
OF THE

COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION

SEPTEMBER 1, 1998

Printed for the use of the Committee on Governmental Affairs

(
U.S. GOVERNMENT PRINTING OFFICE
51102 CC WASHINGTON : 1999

For sale by the Superintendent of Documents, Congressional Sales Office

U.S. Government Printing Office, Washington, DC 20402
 COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, JR., Delaware JOHN GLENN, Ohio
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
HANNAH S. SISTARE, Staff Director and Counsel
LEONARD WEISS, Minority Staff Director
LYNN L. BAKER, Chief Clerk

SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION AND

FEDERAL SERVICES
THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico RICHARD J. DURBIN, Illinois
DON NICKLES, Oklahoma ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia
MITCHEL B. KUGLER, Staff Director
ANN C. REHFUSS, Professional Staff Member
LINDA J. GUSTITUS, Minority Staff Director
JULIE A. SANDER, Chief Clerk

(II)
 CONTENTS

Page
Opening statement:
Senator Cochran ............................................................................................... 1
Senator Levin .................................................................................................... 2
Senator Collins ................................................................................................. 5

WITNESSES

TUESDAY, SEPTEMBER 1, 1998

Hon. Ben Nighthorse Campbell, a U.S. Senator from the State of Colorado ..... 6
Ken Hunter, Chief Inspector, U.S. Postal Inspection Service .............................. 10
Hon. Robert A. Butterworth, Attorney General, State of Florida ....................... 13
Stanley F. Pruss, Assistant Attorney General in Charge, Consumer Protection
Division, Michigan Department of Attorney General, State of Michigan ....... 17
Richard A. Barton, Senior Vice President, Direct Marketing Association, Inc. . 26
William E. Arnold, Director of Gerontology, Arizona State University .............. 32

ALPHABETICAL LIST OF WITNESSES

Arnold, William E.:
Testimony .......................................................................................................... 32
Prepared statement with charts ...................................................................... 89
Barton, Richard A.:
Testimony .......................................................................................................... 26
Prepared statement .......................................................................................... 82
Butterworth, Hon. Robert A.:
Testimony .......................................................................................................... 13
Prepared statement with attachments ........................................................... 59
Campbell, Hon. Ben Nighthorse:
Testimony .......................................................................................................... 6
Prepared statement .......................................................................................... 43
Hunter, Ken:
Testimony .......................................................................................................... 10
Prepared statement .......................................................................................... 47
Pruss, Stanley F.:
Testimony .......................................................................................................... 17
Prepared statement .......................................................................................... 77

APPENDIX
The New York Times article dated July 28, 1998, entitled Sweepstakes
Pit Gullibility and Fine Print, by Douglas Frantz ........................................... 102
Letters to Senator Campbell from:
Howard M. Metzenbaum, U.S. Senator (Ret.), Chairman, Consumer Fed-
eration of America, dated Aug. 24, 1998 ..................................................... 109
Susan Grant, Vice President for Public Policy, Director, National Fraud
Information Center, National Consumers League, dated July 17, 1998 .. 110
Letter from Senator Levin to:
Richard A. Barton, Direct Marketing Association, dated Sept. 4, 1998,
with attachments .......................................................................................... 112
Letter to Senator Levin from:
Richard A. Barton, dated Dec. 23, 1998 ......................................................... 163
List of other names used by the debtor in the last 6 years ................................. 165
Additional copy submitted for the record from Senator Levin ............................. 171

(III)
 IV
Page
National Association of Attorneys General Resolution, Establishment of
Sweepstakes Subcommittee, adopted at Summer Meeting July 1316,
1998, Durango, Colorado ..................................................................................... 178
GAO Report entitled, PROPOSED LEGISLATION, Issues Related to Hon-
esty in Sweepstakes Act of 1998 (S. 2141), by Bernard L. Ungar, Director,
Government Business Operations Issues, General Government Division,
GAO/TGGD98198 ........................................................................................... 180
Synopses of Sweepstakes Complaint Letters provided to the Subcommittee
by the Florida Attorney General Bob Butterworth ........................................... 207
Magazine Publishers of America, Inc., prepared statement ................................ 216
 USE OF MASS MAIL TO DEFRAUD
CONSUMERS

TUESDAY, SEPTEMBER 1, 1998

U.S. SENATE,
SUBCOMMITTEE ON INTERNATIONAL SECURITY,
PROLIFERATION AND FEDERAL SERVICES,
OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:25 p.m. in room
SD342, Senate Dirksen Building, Hon. Thad Cochran, Chairman
of the Subcommittee, presiding.
Present: Senators Cochran, Levin, and Collins.
OPENING STATEMENT OF SENATOR COCHRAN
Senator COCHRAN. The committee will please come to order.
We are pleased to have all of you here for our hearing today. We
are considering at this hearing a subject that aggravates and frus-
trates many Americans, the use of mass mailings that confuse and
sometimes defraud consumers. We will examine some government
look-alike mailings and sweepstakes-type solicitations and try to
determine what Congress can do to discourage the use of these
fraudulent and misleading mailings.
Each year the Postal Service receives thousands of postal cus-
tomer complaints regarding the legitimacy of these mailings. A
New York Times article on July 28 disclosed that from a contest at
Readers Digest Magazine in 1962, there now are over 300 firms
mailing more than 400 million sweepstakes offerings annually.
Sweepstakes offers can result in big profits for the companies in-
volved; in fact, consumers are four to five times as likely, we are
told, to buy a product if a sweepstakes offer is involved.
Since scheduling this hearing, our Subcommittee has been
deluged with stories of consumers who have lost thousands of dol-
larssometimes their life savingsto deceptive mailings. It is not
just the sweepstakes offers that lure consumers into opening mail.
Some mailers imply an association with the government. Other
mailers cleverly entice consumers to join and contribute to or sup-
port organizations, or to buy unneeded products and services.
In 1990, President Bush signed into law the Deceptive Mailings
Prevention Act, a bill which was specifically designed to crack
down on government look-alike mailings. Nevertheless, consumers
continue to receive a lot of mail looking suspiciously like govern-
ment documents, or offering services already provided by the gov-
ernment.
(1)
 2

We really have no way of finding out how many people have been
taken in by deceptive mailings or the amounts of money they have
lost or spent, but estimates for both of these are very high. Accord-
ing to the Federal Trade Commission, 52 percent of the complaints
they receive on their Consumer Information System are related to
sweepstakes, and over $40 billion is lost to consumers annually as
a result of telemarketing and sweepstakes scams, with telemar-
keting scams often originating in the mailbox.
Over the years the Federal Trade Commission, the Postal Inspec-
tion Service, and State Attorneys General have joined forces to
crack down on prize promotion operators. Just last year, three Fed-
eral agencies, 25 State Attorneys General, and numerous local law
enforcement agencies formed a strike force to collect and review di-
rect mail. Project Mailbox resulted in 190 actions against compa-
nies that use the mail to con consumers.
This afternoon we will hear from three sets of witnesses. The
first will be the distinguished Senator from Colorado, the Hon. Ben
Nighthorse Campbell. He is the sponsor of S. 2141, the Honesty in
Sweepstakes Act of 1998.
Our second panel includes Ken Hunter, Chief Inspector of the
U.S. Postal Inspection Service; the Hon. Robert A. Butterworth, At-
torney General for the State of Florida; and Stanley Pruss, Assist-
ant Attorney General for the State of Michigan.
The third panel will be Richard A. Barton, Senior Vice President
of the Direct Marketing Association, and Dr. William Arnold, Direc-
tor of Gerontology at Arizona State University.
We are very pleased to have the cooperation and the assistance
of this distinguished group of witnesses. We have also received
some written statements from interested persons, and we are in-
cluding those statements in our hearing record.1
Before welcoming and recognizing our friend from Colorado, let
me yield to my distinguished colleague on the panel, the Senator
from Michigan.
Senator Levin.
OPENING STATEMENT OF SENATOR LEVIN
Senator LEVIN. Mr. Chairman, thank you for holding these hear-
ings. It is a subject that I and my staff have devoted a tremendous
amount of time to, and it is important that this Subcommittee take
up this subject.
You are a guaranteed cash winner. You are a guaranteed win-
ner. Guaranteed winner notification. Those phrases and others
like them are used in millions of deceptive mail solicitations every
year to get unsuspecting consumers to spend money to collect their
hoped-for prizes. Not only are they told in black and white that
they are winners, they are told that they are guaranteed winners
of cash, cars, vacations, or other prizes. All the recipient has to do,
according to many of these so-called sweepstakes offers, is paste
the right color-coded sticker on the right envelope and send it to
the right address at the right time, and Ed McMahon or some com-
pany representative or a prize patrol will be at the consumers
doorstep to present the winnings.
1 The two prepared statements referred to appear in the Appendix on pages 207 thru 219.
 3

Is such a guarantee real? No. Its a deception. The odds of win-

ning some of the major sweepstakes, such as the Publishers Clear-
inghouse and American Family Publishers, range from 120 million
to 1 to as much as 600 million to 1. With these odds and deceptive
practices, its not surprising that sweepstakes complaints account
for more than 50 percent of the Federal Trade Commissions Con-
sumer Information System complaints, and are one of the top prob-
lems reported to the U.S. Postal Service and State Attorneys Gen-
eral.
Deceptive language and complex prize package solicitations are
received by unsuspecting consumers every day. In fact, one re-
sponse to a sweepstakes solicitation usually guarantees that a per-
son will get dozens more. The more you buy from a company offer-
ing the sweepstakes, such as magazine subscriptions, gardening
supplies, or jewelry, the more sweepstakes solicitations youre
going to receive. Sweepstakes solicitations often include two enve-
lopesone if you place an order to buy a product promoted by the
company, and one if no order is placed. The envelopes have dif-
ferent addresses, or require different color-coded labels to identify
those entries that contain orders from those that do not. Because
of this, consumers are led to believe that they have a better chance
of winning if they buy something, although current law prohibits
different treatment between customers and non-customers.
Unfortunately, the elderly are the most vulnerable to the decep-
tions. Senior citizens are inclined to read their junk mail more than
the rest of the population, and often live alone and on limited in-
comes. The thought of winning a big prize to give them resources
for a better, less lonely lifestyle and to provide an inheritance to
their children or grandchildren is very appealing. In the extreme
casesand there are far too many of themsenior citizens can
spend so much money on sweepstakes promotions that they can no
longer pay the rent. Frequently, a family member or a caregiver
must step in.
State Attorneys General throughout the country receive thou-
sands of complaints about deceptive sweepstakes promotions from
the elderly. In Florida, a judge in the Guardianship Division wrote
the Attorney General of Florida regarding the exploitation of the el-
derly by the sweepstakes industry. He said, Several times a week
it is necessary for our Court to determine the capacity of a senior
citizen and to protect their assets from these types of sweepstakes
exploitations.
Solicitations are cleverly presentedthe color, print size, and
graphics of the solicitation. The materials are assembled in a way
to deceive the mind and the eye.
Take a look at this solicitation up here. The big print is that
its an Official Notification, Guaranteed and Bonded Sweepstakes.
Big print: The judging is now final. Mr. Bruce [last name] is one
of our $1,666,675 winners. Boy, you cant miss that if youre that
Mr. Bruce whatever your last name is.1
And then look at the next big print. Its confirmed. Mr. Jack
Sears and Mr. Bruce so-and-so have both won that prize.
1 The information submitted by Senator Levin appears in the Appendix on page 172.
 4

Well, if you look at the printwhich nobody can readbut if you

get a magnifying glass, youll see a little tiny line under that green
line. Thats the hook. That little line says, if anybody ever pauses
to read itand if you cant read it, if you dont have a magnifying
glassIf you have and return the grand prize winning number,
well officially declare that its confirmed that Jack Sears and Mr.
Bruce have both won $1,666,675.
Now, that to me is about as deceptive as you could possibly even
conceive of. That little line, unreadable, is what takes these decep-
tive practice schemes off the hook under current law, and thats
one of the things weve got to change. There are a number of pro-
posals that would do exactly that.
One of our witnesses, an expert in gerontology and communica-
tions, will have more to say on that later.
In Michigan we have one company, Michigan Bulb Company,
that relies heavily on sweepstakes to attract and keep customers
of its gardening supplies. It uses offers such as a guarantee of win-
ning $250 in cash. Well, when you read the small print on the back
of those kinds of offers, you will see where the hooks are and where
the qualifications are.1
Look at the small print. Thats what now, under current law, lets
these folks get away with the kind of scams that theyre doing. Its
those kinds of rules that nobody can read because theyre so tiny,
and no one wouldafter theyve been told that theyve won these
huge prizes.
Recently, 32 Attorneys General and the District of Columbia got
American Family Publishers50 percent owned by a subsidiary of
Time-Warner, by the wayto agree to stop certain deceptive
sweepstakes practices. American Family Publishers also agreed to
pay the States $1.25 million as a result of a promotion that had
induced a number of people to actually fly to Florida to claim a $11
million prize. Youve got people flying to Florida with money they
dont have to claim a prize they havent won because of these de-
ceptions.
But at the same time that action was being taken against Amer-
ican Family Publishers, another deceptive mailing was being sent
out by Guaranteed and Bonded Sweepstakes, thats a subsidiary of
Time-Warner, guaranteeing that the recipient was a confirmed win-
ner of $1.6 million. Thats the one we referred to. So often, when
an action is taken against one company, another company springs
up under a different name and continues the same practice.
The Chairman has referred to Project Mailbox, which AARP has
run, to go after some of these phony prize awards, and what it
showed was just the extensive nature of this scam.
Now, we have some laws on the books that prohibit the fraudu-
lent or deceptive use of the mails. They just simply do not go far
enough. Several of our witnesses will have suggestions for ways to
strengthen current law and, hopefully, stop these abusive practices.
Here are a few suggestions that I think are serious and we ought
to adopt:
One, give the Postal Service subpoena authority.
1 Letter to Richard A. Barton from Senator Levin, dated September 4, 1998, with attachments
appear in the Appendix on page 112.
 5

Two, make specific deceptive sweepstakes marketing techniques

illegal.
Three, increase the fines. A $10,000 fine for violation of an order
doesnt do much. Thats petty change for these scam artists.
Weve got to have civil and administrative fines without first
going through the order process. We ought to be able to have a
fine, as we do in other laws, for violation of the law without first
having to get an order of the FTC or the Postal Service, that in
turn is violated. Thats one step too many. Its unnecessary. We
dont do it in other laws and we shouldnt require it here.
So weve just simply got to take the profit out of the sweepstakes
scams so that we can shut down these deceptive operations. Con-
gress has made efforts in the past to stop the scams, but they con-
tinue unabated. And in this cat and mouse game it is time for the
government to stop acting like a pussycat, and instead become a
tiger against the scammers who so shamelessly prey on the vulner-
able with such deception and deceit.
Again, my thanks to you, Mr. Chairman, for scheduling this
hearing.
Senator COCHRAN. Thank you, Senator Levin.
Were glad to have with us our distinguished colleague from
Maine, Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thanks very much, Mr. Chairman.
I want to start by thanking you for holding this hearing to ex-
plore deceptive mail and sweepstakes fraud, including the legisla-
tion that has been introduced by the distinguished Senator from
Colorado, Ben Nighthorse Campbell, who has been a real leader in
this area.
Deceptive mailings and sweepstakes fraud are a nationwide
problem, and certainly my State of Maine is not immune from this
problem. A constituent from Portland, Maine recently sent me one
mailing that proclaimed in bold print, You were declared one of
our latest sweepstakes winners, and you are about to be paid
$833,337 in cash. Of course, this individual was not really a win-
ner, as the fine print stipulated that the money was his only if he
had the winning number and returned the grand prize winning
number in time. But at least on this sweepstakes entry there was
some fine print. Some mailings are even more deceptive.
Another constituent of mine from Machiasport recently received
a notice marked Urgent Delivery: A special notification of cash
currently being held by the U.S. Government is ready for shipment
to you. This looks very official and refers to the U.S. Government
holding cash benefits. On the back of this, which says Official No-
tice, Special Notification, it says that the consumer has only to
send in $9.97 in order to collect the money held by the Federal
Government.
I wonder, Mr. Chairman, how many innocent consumers in
Maine and throughout the Nation received this notice, thought that
the Federal Government did indeed hold some cash that was due
them, and sent in the $9.97.
Now, I realize that there are some companies that promote legiti-
mate sweepstakes and do so in a responsible manner, but too many
 6

are engaging in deceptive and fraudulent practices to increase prof-

its or make a quick buck at the expense of the American consumer.
And as Senator Levin has pointed out, frequently they are tar-
geting the most vulnerable citizens, our elderly, who may be living
on very limited incomes.
As Chairman of the Permanent Subcommittee on Investigations,
the agenda of the Subcommittee has focused on a lot of consumer
fraud areas. We heard testimony in July during a hearing on tele-
phone fraud from the National Consumers League that sweep-
stakes fraud consistently ranks as one of their top consumer com-
plaints.
Mr. Chairman, we all want to make sure that we dont impose
unnecessary regulation or legislation on private industry, but time
and time again we hear from people who are engaged in deceptive
practices that the consumer just has to be more careful, sort of the
consumer beware approach. The problem with that is no matter
how careful a consumer is, if the consumer is dealing with mailings
that are deceptive and fraudulent, it is very difficult for even the
most cautious and educated consumer to make informed and re-
sponsible choices.
So again, Mr. Chairman, I commend you for your leadership in
this area and I look forward to hearing the testimony of our wit-
nesses today.
Senator COCHRAN. Thank you very much, Senator.
We are pleased that Senator Ben Nighthorse Campbell is here
today to appear as the first witness on this subject.
Senator, we welcome you and compliment you on the work you
have done in this area, and would like you to proceed.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL,1 A U.S.
SENATOR FROM THE STATE OF COLORADO
Senator CAMPBELL. Thank you, Mr. Chairman, and thank you for
scheduling this hearing on S. 2141, the Honesty in Sweepstakes
Act of 1998.
Very frankly, after hearing the comments of the Ranking Minor-
ity Member, Senator Levin, I am beginning to think my bill doesnt
go far enough. But clearly it is a vehicle on which I look forward
to working with you and Senator Levin and all those, including
Senator Collins, who have shown a great deal of interest in this
issue.
But I believe the Honesty in Sweepstakes Act would be a big step
in protecting consumers from deceptive mass mailing and mar-
keting tactics. All three of you have alluded to the many stories
you have heard from your own constituents. The letter that Sen-
ator Collins referred to as a constituents letter is this letter, by the
way; this was received by one of my staff members here in the Sen-
ate. It must have went out to millions of people, hundreds of mil-
lions of people, perhaps.
I believe that we are long overdue in trying to protect people
from the ploys that are done by sweepstakes companies. They basi-
cally prey on the hopes and dreams of people, and the situation is
clearly getting worse. I think this bill will go a long way toward
1 The prepared statement of Senator Campbell appears in the Appendix on page 43.
 7

helping to protect our countrys most vulnerable citizens, the sus-

ceptible people like seniors, perhaps those who are less educated,
and certainly the poor. I have an education; I think I can read rea-
sonably well; I think I understand generally what I am reading.
But when I get these things in the mail, very frankly, they are so
realistic, and there are ones that look like they are actually stock
options. They have very flowery edges. When you first look at
them, you think that theyre negotiable, that you might be able to
take them to the bank or somewhere and get money for them.
Clearly, thats not true.
The New York Times, Mr. Chairmanyou alluded to the Tues-
day, July 28 article in The New York Times. It was a front-page
article. Let me read just a couple of sentences from that article.
This is part of it, about a lady by the name Edwards, an 88-year-
old widow who played magazine sweepstakes and similar pro-
motions passionately for years. In a 54-day period in 1995 she
wrote 148 checks to 56 contests, and her family estimates that in
5 years she has spent more than $60,000 on magazines that she
never read, and worthless prizes, without ever winning a dime.
Thats a good example.
One part of the article talks about a man that was literally driv-
en to suicide because he became destitute playing these sweep-
stakes games.
It talks about the American Family Publishing Company that is
involved in 26 class action civil suits and 11 suits brought by indi-
viduals, seeking millions of dollars in restitution.
It goes further to talk about the kinds of things you mentioned,
the bold print that says things like, Its down to a two-person race
with $11 million. You and one other person were selected as the
winning number. Whoever returns this first wins it all. I mean,
theyre really encouraging you to respond. Of course, the tiny print
that you cant even see with a magnifying glassremember, if you
shrunk this thing down to the size you normally see in a letter, you
can imagine how tiny that print gets that tells you you have to buy
a bunch of magazines or do something else, jump through a bunch
of hoops, but spend money in order to qualify as the one person
that wins the $11 million.
The article goes on to cover a number of other things that I think
are just totally misleading. I wont read them all but, with your
permission, Mr. Chairman, I would like to include this July 28
newspaper article for the record.1
Senator COCHRAN. Without objection, so ordered.
Senator CAMPBELL. It could be anybody. Certainly, Mr. Chair-
man, youre an educated person, but if you got a letter saying,
Thad Cochran, you have already won $24 million, it would prob-
ably get your interest. It does me, too. I have seen so many of them
now that I just throw them away, but the first two or three of those
that you get are really deceptive, and only careful reading of the
fine print tells you that we are really skirting the edge on what I
call the truth in advertising laws. We already have these in ciga-
rettes and liquor and a number of other things that we think are
dangerous for consumers, or where they might be deluded into
1 The article from The New York Times, dated July 28, appears in the Appendix on page 102.
 8

thinking that theyre going to get something for nothing, and we

try to inform them. I think its time we do that in our sweepstakes
area, too.
I know that some people say that this may go too far and may
infringe on First Amendment rights. It would seem to me that if
there is a danger of doing that, then clearly it would have been
thrown out by the courts a long time ago in advertising on other
products that Ive already mentioned.
But I think we do have a problem thats growing. We dont know
the exact extent of it. The GAO is conducting a study now to try
to find out the extent of it, but each State seems to be left to its
own devices. In some States, the Attorneys General take them up
if they get complaints, but their basic mission is not to protect ev-
erybody from every kind of abuse by different companies, and very
often you are left to your own devices to go to court, and you are
obviously up against a pretty big, well-oiled machine with a lot of
lawyers, and an individualparticularly people of limited means
simply cant fight it through the courts and they are left pretty
much at risk.
While drafting this bill I consulted with the offices of both Colo-
rado Attorney General Gale Norton and Florida Attorney General
Robert Butterworth. One key result of these consultations was the
inclusion of a clause stating that nothing in this bill would preempt
State law. This clause reserves the right of each State to enact its
own additional guidelines or to take other legal action as it sees fit.
I certainly appreciate their input and I am pleased to see that At-
torney General Butterworth is here today and will be testifying a
little bit later.
With that, Mr. Chairman, in the interest of time, I will just go
ahead and submit the rest of my testimony for the record because
I, too, look forward to hearing some of the testimony. But I know,
as you do, that we are far down this road. We need to do something
about it.
I would also like to include several other things that we have for
the record. One of them is this letter from the Consumer Federa-
tion of America that endorses this bill. Senator Metzenbaum is
very active with this group, our former colleague, and he also sent
a letter with it, and I would ask that that be included in the
record.1
Senator COCHRAN. Without objection, it will be included in the
record.
Senator CAMPBELL. We also have some testimony and a letter
from the National Consumers League, also in support of this bill.
They state, This legislation would be very effective in preventing
misleading and deceptive sweepstakes solicitations. And with your
permission, I would like to also include that in the record, too.2
Senator COCHRAN. It will also be included in the record, Senator.
Senator CAMPBELL. With that, Mr. Chairman, I thank you for
your consideration and look forward to hearing the witnesses.
Senator COCHRAN. Thank you very much for being here.
1 The letter from Howard M. Metzenbaum, U.S. Senator (Ret.), to Senator Campbell, dated
August 24, 1998, appears in the Appendix on page 109.
2 The letter from the National Consumers League, to Senator Campbell, dated July 17, 1998,
appears in the Appendix on page 110.
 9

I dont have any questions. I compliment you on your initiative

in trying to get the Senates attention by introducing this legisla-
tion. We do need to respond in an effective way to this crisis, and
I think this will be very helpful to us as we consider the options
for doing just that.
Senator CAMPBELL. Thank you, Mr. Chairman.
Senator COCHRAN. Senator Levin, do you have any questions?
Senator LEVIN. I just have one question, because I think this bill
is on the right track.
How does the Postal Service in matters like this know what is
inside the envelope in order to implementfor instance, section 2
of your bill, which says that matters otherwise legally acceptable
in the mail that constitute a solicitation or offer in connection with
the sale or promotion of a product that uses any matter resembling
a negotiable instrument shall not be carried or delivered by mail.
How does the Postal Service check to see what is inside of that en-
velope?
Senator CAMPBELL. Im afraid I dont have an answer for that.
Senator COCHRAN. If youll let me, Senator, I may be able to help.
I received one that looked just like a check the other day. It said,
Pay to the Order of Thad Cochran, with my address here. Thats
inside the letter, but through the window you can see that it says
that. Thats what every check usually says.
Senator LEVIN. And how do they know its not a check?
Senator COCHRAN. Well, then the Postal Inspection Service can
confiscate it, I think. Thats what the Campbell bill would do. It
gives the Postal Inspection Service authority, when something ac-
tually clearly shows that it is a checkI think thats what the lan-
guage saysthat this falls within the prohibition of S. 2141. But
this, apparently, is not prohibited by law at this time.
This looks like an official check. Look, an eagle up here in the
corner of the envelope; Buy and hold U.S. Savings Bonds; United
States Mail; Special Notice to the Postmaster: Intended for deliv-
ery only to addressee. Please handle in accordance with postal
regs. It sounds like this is a check, right? I opened it thinking that
it might be a check. Do you know what it was? It was an offer to
loan me money. No equity required. Interest may be tax-deduct-
ible. Borrow $50,000 from us on your home as equity.
This ought to be prohibited.
Senator LEVIN. I would love to be able to prohibit that, too. My
question, though, is how does the Post Office know that its not a
check when they look at the outside? Do we want them to open the
lettereverything that looks like a check?
Senator CAMPBELL. I think the probable answer would be that
people who get these letters are the ones who open them, and if
they are concerned about it, they then turn them in to the Postal
Inspectors.
Senator LEVIN. Some responsibility has to lie with the people
who are getting these checks, who are being deceived. I dont think
the Postal Service should have the authority to just arbitrarily
open letters because they assume there might be some sweepstakes
offer in it.
Thank you, Mr. Chairman.
Senator COCHRAN. Senator Collins.
 10

Senator COLLINS. I have no questions, thank you.

Senator COCHRAN. Thank you very much, Senator Campbell.
Senator CAMPBELL. Thank you, Mr. Chairman.
Senator COCHRAN. If our second panel of witnesses will please
come forward, we will proceed to receive your statements.
The second panel includes Robert Butterworth, Attorney General
of the State of Florida; Stanley Pruss, Assistant Attorney General
of the State of Michigan; and Ken Hunter, who is the Chief Inspec-
tor of the Postal Inspection Service.
Mr. Hunter, I think I will call on you first and ask you to pro-
ceed.
STATEMENT OF KEN HUNTER,1 CHIEF INSPECTOR, U.S.
POSTAL INSPECTION SERVICE
Mr. HUNTER. Thank you, Mr. Chairman. I first want to thank
you and your fellow Senators for your interest in this issue of
sweepstakes and government look-alike mailings. Your efforts here
provide one more means to educate the American public to protect
themselves. With your permission, I would like to submit my writ-
ten testimony for the record and only briefly summarize it here.
Senator COCHRAN. Thats certainly welcomed, and we appreciate
that. It will be included in the record in full.
Mr. HUNTER. Thank you.
For over 200 years the Postal Inspection Service has been the in-
vestigative arm of the U.S. Postal Service. Our responsibilities in-
clude protecting postal employees, the mails, and the Postal Service
from attack; auditing some postal operations; and protecting con-
sumers from being victimized through the mails.
Congress originally created the Nations mail service to maintain
a reliable, efficient, effective, and secure means of communication.
A recent Harris Poll affirms that the American public feels signifi-
cantly more confident about the security of the mail than the tele-
phone, Internet, or other means of electronic communication.
Postal Inspection Service employees are dedicated to preventing
unscrupulous promoters from damaging that confidence in the
mails.
This hearing calls attention to sweepstakes promotions that may
deceive the public into believing they are prize winners. However,
there are many sweepstakes promotions which are forthright in
their approach to the consumer and do not violate any postal stat-
ute. The hearing also examines other marketing programs that
falsely imply that they are affiliated with the government.
A detailed description of the existing civil and criminal laws and
their application to sweepstakes, lotteries, and government look-
alike mailings is included in my prepared testimony, but I would
like to emphasize that if those statutes were adequate, we would
not be here today. Senator Campbell has introduced legislation to
deal with a gray area, the guaranteed winner claim that appears
in many sweepstakes. We support the concept underlying the legis-
lation and commend Senator Campbell. In my written testimony I
have suggested some possible means of making the legislation even
1 The prepared statement of Mr. Hunter with attachments appears in the Appendix on page
47.
 11

more effective; perhaps we could call them the Levin amend-

ments.
Turning to the second type of promotion, the so-called govern-
ment look-alike mailings, I am pleased to report that as a result
of the enactment of the Deceptive Mailings Prevention Act of 1990,
which you referred to, we have seen a decrease in the number of
complaints regarding these kinds of mailings. Nevertheless, we
continue to receive too many complaints.
At this time I would like to present to you examples of a sweep-
stakes scheme, a government look-alike scheme, and an awards
scheme in which the Subcommittee staff expressed an interest.
The first example, the Union Gram, is a sweepstakes solicita-
tion. Its a notice alleging that funds were being held that the re-
cipient was entitled to, and offering an additional redeemable docu-
mentation package in return for a $19 processing fee. Those who
sent in the fee received a booklet of almost worthless discount cou-
pons. The promoter has signed a consent agreement to make re-
funds to all customers who complained about the promotion, and
to permanently discontinue mailing the solicitation.
The second example, Cash Claims Service, using addresses at
commercial mail receiving agencies in New York, Washington, and
Arizona, mailed a series of postcards soliciting $9.97Senator Col-
lins, this is the one that you held upfor immediate delivery of
up to $775 cash, allegedly being held by the government. Ulti-
mately, the promoter agreed to a cease and desist order to perma-
nently discontinue the scheme, return the mailed-in responses, and
to make refunds.
Blair Down, a Canadian using a New York address, operated a
series of promotions using different business names, and 70 dif-
ferent return mail addresses in the United States. He mailed mil-
lions of solicitations, many of which were sent to elderly recipients,
representing that they had won valuable prizes. Those who sent in
the requested fees received nothing in most cases. This exhibit is
just one of the many solicitations that he used. I would like to di-
rect your attention to the fine print on the bottom of the regular-
sized copy you see on the chart, and I hope that copies were also
provided to you for your review. As you can see, it is difficult to
ascertain the rules of the contest, probably even with a magnifying
glass.
While Mr. Down was conducting these promotions, he was in fact
under indictment in Seattle, Washington, as a result of his involve-
ment in telemarketing and direct mail ventures.
In February, a civil complaint was filed against Mr. Down alleg-
ing that he was engaged in mail fraud. The District Court issued
an injunction allowing us to detain his mail, and an order freezing
his bank accounts. Ultimately, a settlement was reached in which
he agreed to forfeit $12 million in the Seattle case, which will be
used to make partial restitution to the victims in both cases.
While I am proud of our success in conventional law enforcement
efforts, I am convinced that arrests, convictions, and civil judg-
ments are only part of the way to effectively deal with consumer
fraud. The results, unfortunately, of these efforts only come after
the victims have lost their money and the con artists have spent
it.
 12

For this reason we have been working closely with consumer

groups and industry to develop fraud and loss prevention strategies
and share best practices. These efforts have produced dramatic re-
sults in the areas we have targeted. Currently we are working with
the Federal Trade Commission, the Direct Marketing Association,
U.S. Attorneys Offices, the State Attorneys General, the Better
Business Bureaus, State consumer protection groups, AARP, and
others to help educate consumers regarding prevailing money order
scams. Arming the public with information regarding scams is a
good way to reduce the harm these promotions can cause, because
all potential victims must make that initial choice to participate.
I am particularly pleased to announce here today that we have
joined with the National Council of Better Business Bureaus to
make possible a vision we share. We are meeting with other con-
sumer and government agencies to solicit their support in launch-
ing what will be the most ambitious fraud prevention initiative
ever attempted. By early spring, we plan to mail to every home in
Americaover 120 million addressesa card containing valuable
telemarketing fraud prevention tips and providing an 800 phone
number to obtain additional assistance. The card is being designed
for display by the telephone as a reference and prevention tool.
My written testimony includes several possible improvements in
the statutes used to deal with deceptive mail order promotions.
Briefly, these include the following, as was suggested in part by
Senator Levin.
First, amending the false representation statute to require that
promoters disclose their actual name and address;
Second, at present, multiple District Court actions are needed to
obtain injunctions where the promoters use addresses in more than
one judicial district. We recommend allowing any District Court
with jurisdiction to issue one order that would cover all addresses;
Third, we are often frustrated by seeing con artists we have driv-
en out of the mails simply continue the same scam, using tele-
phones and private delivery services. We would like you to consider
amending the law to permit the courts to issue civil penalties
against those who follow this course;
Fourth, we recommend that authority be established to impose
financial penalties upon persons who mail nonmailable matter; and
Fifth, as Senator Levin suggested, we suggest you consider pro-
viding the Postal Service with administrative subpoena authority,
similar to that granted to other agencies, to improve our ability to
take the prompt, effective action against mail order scams and lot-
teries. This drives at the issue on which you were engaged in the
discussion with the Senator from Colorado.
In conclusion, I assure you that the Postal Inspection Service will
continue to combine aggressive investigations and widespread pub-
lic awareness campaigns to rid the mails of fraudulent schemes.
The American publics confidence in the mail is not only important
to the Postal Service, but also to the many thousands of businesses
that rely on the mail as an important marketing tool.
Again, thank you very much for this hearing and allowing me
this opportunity to discuss these important matters. We would be
pleased to work with you regarding the legislative proposals.
Thank you.
 13

Senator COCHRAN. Thank you, Mr. Hunter, for your helpful testi-
mony and your suggestions for changes in the law that might very
well be more effective in preventing this kind of consumer fraud
from being practiced.
Our next member of the panel is Robert Butterworth, who is At-
torney General of the State of Florida.
We welcome you, Attorney General Butterworth, and invite you
to proceed with your testimony.

STATEMENT OF HON. ROBERT A. BUTTERWORTH,1 ATTORNEY

GENERAL, STATE OF FLORIDA
Mr. BUTTERWORTH. Mr. Chairman, Senators, thank you very
much for this opportunity to appear before you today.
Florida welcomes millions of visitors each year, and we are de-
lighted to have them. They are very essential to our State. How-
ever, there is one type of visitor wed rather not have, namely,
those who are lured to Florida not by its climate and tourist attrac-
tions, butas Senator Levin statedby empty promises of instant
wealth. These are the unfortunate souls who fall victim to the kind
of cynical deception that has become all to common in the world of
sweepstakes marketing.
By now, most Americans are probably familiar with the people
I am talking about. Their sad stories have appeared on national TV
news broadcasts and in newspapers throughout the country. Their
destination is Tampa, Florida, where entries for one of this Na-
tions largest sweepstakes operators, American Family Publishers,
are processed. They come to claim the millions of dollars they are
certain they have won, or are about to win, because a celebrity
spokesman assured them as much in a letter. In many instances
they come at a cost that they cannot afford.
One young single mother of two borrowed $1,500 from her sister
so she could fly to FLorida to claim her ticket out of poverty and
a rough neighborhood in Baltimore. Convinced she was one of only
two people in the running for a $10 million prize, she appeared at
the processing center with her two little daughters in tow. Instead
of confirmation of her good fortune, she received ridicule from a
young office manager, who in essence spat on her dreams and sent
her away.
We have a working relationship with the taxicab drivers at the
airport, as well as the Greyhound Bus Station. They will take the
people to American Family Publishers and wait for them. They will
then take them to our office.
While the national spotlight has fallen on people such as this un-
fortunate young woman, they merely embody the most extreme
symptom of an underlying problem that affects millions. Direct
mail marketers have learned that tying the purchase of a product
to a sweepstakes will enhance the chances of a sale. They have also
learned that the more they can blur the distinction between enter-
ing a sweepstakes and purchasing a product, the more successful
they will be in selling magazines.
1 The prepared statement of Mr. Butterworth with attachments appears in the Appendix on
page 5900.
 14

I may question the integrity of many sweepstakes marketers, but

I do not question their intelligence. They are masters at devising
complex and convoluted solicitations intended to confuse the aver-
age consumer and generate a sale.
While American Family Publishers is by no means the only com-
pany to employ deceptive tactics, our experience with that firm il-
lustrates what we are up against in combatting sweepstakes swin-
dlers. Last February, Florida filed a civil complaint against Amer-
ican Family Publishers and its celebrity spokesmen, Ed McMahon
and Dick Clark. We did so after months of discussions with the
company failed to resolve our concerns about deceptive marketing
practices. It was during those discussions, which included Florida
and many other States, that American Family Publishers launched
a particularly deceptive solicitationwhile they were negotiating
with us, 30-some-odd States, they then launched another deceptive
solicitation. Because of that action and its harmful impact on con-
sumers, we did not feel we could continue participating in such
multi-State talks.
Among tactics used in the solicitation were the false suggestions
that recipients were one of only two winning ticket holders com-
peting for an $11 million prize. Weve all seen those. The company
also placed a tight deadline on claiming the prize, then required
those who did not buy magazines to follow a more cumbersome and
time-consuming process to enter the contest than those who did
buy magazines. If you bought a magazine, you put the stamp on,
you mailed it to Tampa. If you didnt buy a magazine, you clipped
outit says, very carefully clip out this little coupon, Scotch tape
itdont staple it, dont paper-clip itScotch tape it or glue it to
an envelope, and it then goes to a non-order center in Waycross,
Georgia. Remember, the one that gets to Tampa first wins, so if
you put a stamp on it and order a magazine, it goes right to
Tampa; if you decide, as you are allowed, to not buy a product, it
goes to Waycross, Georgia. Most people think that if you mail it to
Tampa, it might get to Tampa quicker than if you mailed it to
Waycross, Georgia, and theyre probably right.
The objective of such tactics is to convince the consumer that he
or she must act quickly to claim the prize, and that the best way
to do that is to purchase magazines. Our files are filled with con-
sumer complaints which prove that these and other deceptive tac-
tics actually workednot only for American Family Publishers and
the sale of magazines, but for other sweepstakes operators selling
a wide variety of products.
The most disturbing of these cases involve especially vulnerable
individuals such as the elderly, the inform, and those with very
limited means. An elderly gentleman from Clearwater, Florida,
who suffers from dementia spent $30,000 with Publishers Clearing-
house in only 18 months. When we visited him, it was hard for us
and him to get around his apartment at the same time, he had so
many magazines and other things that he had purchased via
sweepstakes.
There is the 80-year-old lady from Seattle who postponed her
scheduled surgery so that she would be home when her $10 million
check was to arrive.
 15

A 78-year-old woman from Winter Springs, Florida, lives on food

stamps and Social Security, but she could not resist the sweep-
stakes offers that came into her mailbox. She is now being hounded
by collection agencies because the purchases she made to enter
those sweepstakes were made with worthless checks. Obviously,
she wasnt worried about her check being worthless, because she
was going to win $10 million.
It would be simple to write of such cases with the axiom, A fool
and his money are soon parted, but these people, as we know, are
not fools. They are our neighbors, our parents, our grandparents,
all good people who have fallen victim to companies that have sac-
rificed decency and ethics on the altar of the bottom line.
What is more, no one is beyond the reach of such companies. A
couple months ago we filed our complaint against American Family
Publishers, and a letter from the company, signed by Ed McMahon
and Dick Clark, was delivered to my Tallahassee office. What I
thought happened was that they were willing to settle their case
because they thought they were wrong, but when I opened the let-
ter I got a real big surprise. Attorney General, the letter said,
you will definitely win the cash or merchandise prize that appears
on your prize claim number label.
I really thought about taking action against them, but I didnt.
And the reason why I didnt is that this really did come to my office
on April 1, and I believe that that probably is the only day that
that particular type of solicitation should be in our mailboxes. So
I thought that they probably would have a pretty good defense
against that particular suit.
But then I learned later that I was in real good company because
a similar letter was sent to a church in Bushnell, Florida, inform-
ing God that He was a finalist for a multi-million dollar prize from
American Family Publishers.
While the merchandise being sold may differ, the deceptive meth-
ods used by shady sweepstakes operators to sell them are often
quite similar.
One hallmark of the deceptive solicitation is a degree of com-
plexity for submitting a free entry that would turn an IRS tax code
writer green with envy. All but lost in that deliberate complexity
is the message that no purchase is necessary to enter the sweep-
stakes. Not only is that message obscured or given little or no
prominence; it is often contradicted by the content of the solicita-
tion piece.
As Senator Collins stated, they use such terms as special han-
dling and rush orders, often used to create the illusion of ur-
gency, even though all orders are obviously handled in the same
fashion.
False deadlines are designed to elicit immediate responses, even
though a sweepstakes might not close for more than a year.
Our investigation of American Family Publishers revealed that
people who purchased magazines through a sweepstakes often re-
ceived two invoices, just days apart. This is sometimes a second
part of the scam. Once they get you to buy the magazine, they will
then send you a bill, and then a few days thereafter you will get
another bill. Many people, believing that they didnt pay the first
bill, will pay the second bill. Such tactics are intended to mislead
 16

consumers, especially the elderly, into paying two, three, or four

times. You would assume that if you pay two or three times for the
same year, what youll end up doing is getting some money back.
Thats not what happens. You end up getting that magazine maybe
2, 3, 4, or 5 years in the future, and many children and grand-
children are finding out that their parents or grandparents had
paid-up subscriptions well into the next century. The reason for
that problem, we believe, is that the solicitation company will re-
ceive about 80 or 90 percent of the actual billings the first year.
Subsequent billings, they may not get any percentage on at all, so
the more up-front money they can get, no matter for how many
years, and we believe that a large percentage of the profit is there.
We have to actually strike at these and other deceptive practices.
There are reforms that we would like to see.
First, there should be a clear separation between the process for
entering a sweepstakes and the process for buying a product. In
that same vein, any inferences that purchasing a product will en-
hance a consumers chance of winning should be eliminated.
Claims that a consumer is already a winner also should not be
allowed unless that consumer is in fact an unconditional winner.
The same holds in those instances when a sweepstakes operator
declares every solicited consumer a guaranteed winner, then sends
those who respond a worthless trinket. In addition, phony claims
that the consumer has become part of an elite group still vying for
the grand prize, when in fact they are not, should be prohibited.
The number of solicitations sent to a single consumer for any
particular sweepstakes should be limited to prevent exploitation of
especially vulnerable individuals. You may very well get the fourth
entry on the same sweepstakes; if you keep sending back cards,
you will keep getting the solicitations.
Along the same lines, there need to be restrictions on the sale
of lists containing the names of sweepstakes players. These are so-
called mooch lists and they are pure gold in this particular busi-
ness because these are people who have already been defrauded.
The companies will sell these lists from one company to another.
The odds of winning a sweepstakes, which in some instances can
be as high as one in hundreds of millions, should be clearly and
prominently disclosed.
Envelopes and letters designed to look like official documents
should not be allowed.
Safeguards to prevent multiple billings, and to prevent overpay-
ments from being used to extend subscriptions without a con-
sumers permission, should be put in place.
Sweepstakes promoters should include in their solicitations a
toll-free phone number for consumers to call for more information
about a particular contest.
And finally, promoters should also provide a toll-free number
that consumers can use to call to have their names taken off the
companys mailing list, and those requests should be honored.
The task of reforming the sweepstakes marketing industry cries
out for a comprehensive nationwide approach. You have acknowl-
edged the wisdom of that approach, and we certainly appreciate
what you are doing here today.
 17

I would like to put into the record a resolution from the National
Association of Attorneys General which we adopted at our summer
meeting just a couple months ago, which established a Sweep-
stakes Subcommittee. It is chaired by Attorney General Jeff
Modisett out of Indiana, and we would be glad to work with you,
Senators, in this particular legislation.1
Senator COCHRAN. Thank you very much, Assistant Attorney
General Butterworth. We appreciate your testimony and your in-
volvement in this effort to try to put a stop to this kind of fraud
that is going on in our country. The resolution that you identified
will be made a part of the record.
Mr. BUTTERWORTH. Thank you, sir.
Senator COCHRAN. Let us now turn to Stanley Pruss, who is As-
sistant Attorney General in the State of Michigan.
We appreciate your being here, Mr. Assistant Attorney General.
You may proceed.
STATEMENT OF STANLEY F. PRUSS,2 ASSISTANT ATTORNEY
GENERAL IN CHARGE, CONSUMER PROTECTION DIVISION,
MICHIGAN DEPARTMENT OF ATTORNEY GENERAL, STATE
OF MICHIGAN
Mr. PRUSS. Thank you, Mr. Chairman, Members of the Com-
mittee.
I am the Chief of the Consumer Protection Division of the Michi-
gan Department of Attorney General, and I am presenting this tes-
timony on behalf of Attorney General Frank Kelley, who regrets
that his schedule doesnt allow him to be here today.
This hearing provides a much-needed opportunity for greatly en-
hanced public scrutiny of marketing practices that are becoming in-
creasingly unfair, deceptive, and unconscionable. It is our sincere
hope and expectation that this hearing will not only heighten pub-
lic awareness of these practices, but lead to meaningful State and
Federal legislative action directed at combatting these shameful,
predatory practices.
Primary among these marketing practices are the so-called
sweepstakes promotions that are being increasingly used by both
unscrupulous and legitimate members of the business community.
We are all aware of these promotions, as we are allto varying de-
greesvictims. These mailings are almost always unsolicited and
unwanted; they are annoying and frustrating, yet they have been
specifically designed by marketing experts to be tantalizing and al-
luring. The envelopes are designed to compel the recipient to open
and examine the contents, and this is the hook. The most direct
and effective allurement is personalized deception such as, Carl
Levin, you have just won $50 million, in bold 16-point print.
Many people, fortunately, recognize this calculated deception to
sell goods or services and, most notoriously, magazines. Most of us
simply dont have the time to unfold the numerous papers inside,
to choose between the Jaguar or Mercedes Benz from the colored,
adhesive-backed perforated stamps to affix to the return card. Yet
many of our citizens do have the time, and these are, dispro-
1 The referenced resolution appears in the Appendix on page 178.
2 The prepared statement of Mr. Pruss appears in the Appendix on page 77.
 18

portionally, our senior and disabled citizens. The deceptive lan-

guage of the promotions is so cleverly qualified that it is reasonable
for some to think that they have won a prize that will bring sudden
wealth. The sweepstakes promotions are, of course, designed to
suggest that the recipients eligibility for the prize is directly re-
lated to the extent of the purchase of the goods and services: Buy
more and you will likely win more; respond quickly and you will
win more; and never affix the no sticker to the return envelope.
The effectiveness of sweepstakes promotion as a marketing tech-
nique is in direct proportion to the magnitude of the deception and
the cleverness with which it is purveyed. The marketing experts
behind these unconscionable schemes know that there is a segment
of our population that will, most literally, buy into the deception.
And for that segment of our population, sweeps promotions can be
devastating. The most vulnerable of our citizens will write check
after check in response to these mailings in the elusive quest to
win the grand prize.
Worse, those who fall victim to the marketing predators once are
deliberately and knowingly set up to become victims again and
again, when their names and addresses are sold to others who sim-
ply steal their money. I have with me today letters and testi-
monials from relatives of persons, typically senior citizens, who
have come to discover that their loved ones have been exploited
and who have lost tens of thousands of dollars in response to prize
promotions. Some of our complainants inform us that their rel-
atives have garages and basements full of magazines and other
items from prize promoters and telemarketers.
The complaints include an elderly woman from Livonia, Michi-
gan, who sent more than $20,000 to prize promoters; a grand-
mother from Spruce, Michigan, who spent more than $20,000 on
sweepstakes in 1996 alone; and a woman in Michigan who has
spent more than $200,000 on sweepstakes promotions and whose
home and garage are filled with sweepstakes promotional mate-
rials. These complaints beg the question of how one could ever ex-
pend such sums without becoming the focus, chosen target of pred-
atory sweepstakes marketeers. The answer may line in this ver-
batim complaint we recently received from an 89-year-old resident
of Owosso, Michigan:
In the past I have ordered various items from Publishers Clear-
ing House, have paid for some and returned others; and have re-
ceived several notices stating I am a winner. One time a person
called and stated that I was one of the last five people to win and
ask (sic) if I would be home on a certain date and to have my fam-
ily present. The last notice took the cake, they now have my com-
ments, my family and my neighbors (sic) comments to my winning.
I will soon be 90, and do not feel that I need this sort of harass-
ment. It is a fraud and unfair to me and others that they be al-
lowed to continue such false advertising. I, like any other person,
would like to be a winner, but obviously, this will not happen.
Please, help to stop this fraud, or help to make me a true winner.
You, Members of this Subcommittee, can help every senior cit-
izen by putting a stop to these deceptive sweepstakes promotions.
In Michigan we have a horticultural company, Michigan Bulb,
that has used sweepstakes promotions that we believed were unfair
 19

and deceptive and thus violated the Michigan Consumer Protection

Act. We threatened legal action against Michigan Bulb and it
agreed to modify its Michigan sweepstakes mailings to address our
concerns. The problem, however, is that the sweepstakes promoters
find ever more ingenious ways to deceive and mislead the public.
The compliance and enforcement efforts of States have not been
able to stem the tide of deceptive solicitations nor anticipate the
new marketing techniques that are increasingly being employed by
an ever-widening array of businesses.
Of course, there are legitimate prize promotions that are effec-
tively used by the best of our business community, but those busi-
nesses that depend on sweepstakes campaigns have not been able
to conform their promotions to meet reasonable ethical or legal
standards.
The Direct Marketing Association, a trade group that includes in
its membership companies who use sweepstakes campaigns as
their primary marketing practice, represents that these promotions
are not inherently deceptive and even state that those who spend
large sums of money on such promotions are unstable. The Direct
Marketing Associations position is astonishingly callous and out-
rageous. To suggest that these carefully designed and specially
crafted sales promotions are not inherently deceptive is as out-
rageous and bizarre as having the CEOs of the tobacco companies
come before this Congress and state that they are unaware of any
evidence that tobacco is addictive or that it causes cancer. To state
that those who respond to these deceptive solicitations are unsta-
ble is shameful, offensive, and wrong.
There are measures that can be taken that are simple and may
be effective. Some of these measures are already under consider-
ation by this Congress. Let me suggest a few.
Every mailing that contains a sweepstakes or prize promotion
should have clear and distinct disclosures on the front of the enve-
lope that inform the recipient that This is a sweepstakes pro-
motionyou have not automatically won and you need not pur-
chase anything to win or to enhance your chances of winning.
There should be clear and distinct disclosures specifying the odds
of winning every prize. The official rules need to be clearly stated
on the first page of the promotion materials in print that is large
and legible, and not like this.
The enforcement authority should be able to seek civil penalties
for every solicitation that fails to comply with these requirements.
Additional, enhanced civil penalties should be imposed in cases
where the evidence indicates that senior or disabled citizens were
targeted with the solicitation.
Last, this Subcommittee must not underestimate the creative
faculties of predatory marketeers who design and craft these pro-
motions. They will do their utmost to disguise or shadow any dis-
closure requirements that the law may impose. We will all have to
maintain our vigilance and respond accordingly.
Thank you for inviting Attorney General Kelley to appear before
this Subcommittee. Our department appreciates the opportunity to
speak out on these issues and to provide written testimony for the
permanent record.
 20

Senator COCHRAN. Thank you very much, Assistant Attorney

General Pruss. We appreciate your being here and your assistance
to our Subcommittee.
When I was responding to a questionit was Senator Levin who
asked Senator Campbellabout how we would effectively prohibit
sending materials that appear to be a check, for example, and turn
out not to be. I know that this envelope and the enclosure, that you
can see through the windowand I mistakenly said that it clearly
had printed on it, Pay to the Order of Thad Cochran, but now
that I look at it again it just says, To the Order of Thad Cochran.
Is that one of the deceptive practices that youre talking about,
that we ought to be able to put a stop to, Mr. Hunter?
I have a couple of other examples. Heres a staff member of mine
who received a similar letter from someone else, and it appears to
be a government or an official-kind of envelope, and the symbol
over here looks like it could be on a check, and it says, To the
Order of, and then the name of my staff member, a very similar
kind of thing through the mail.
I would guess that 99 percent of the people who receive mailings
like this will open them and see what they are, and both of these,
incidentally, turn out to be offers to loan money. This is no sweep-
stakes scam, but just a deceptive way of getting attention to the
fact that this company is willing to make you an equity loan on
your home.
Is this the kind of thing that we can deal with legislatively? Or
do we just have to continue to live with this kind of practice and
have everybody put on notice to read the letters carefully and not
be misled?
What is our advice to them? Mr. Hunter, do you want to try an
answer to that?
Mr. HUNTER. Id be happy to.
I think first we need, through this process and by working with
the various entities that have an interest in it, to try to reach some
agreement on further prohibitions on what is permissible, and in
combination with that, to have some enhanced tools to quickly ad-
dress suspect offers, such as the subpoena power that was sug-
gested, so that when complaints begin to be received we can quick-
ly go in to obtain the necessary information to determine whether
or not it is in violation of the enhanced statues.
What you held up clearly is misleading, the one that had an
eagle on it that makes it appear more government-like in nature.
I think that an honest company should be willing to clearly rep-
resent what they are offering to you, so that when you ultimately
receive whatever it is, that you are not disappointed, that there is
a congruence between your expectations and reality.
Senator COCHRAN. One other example that I brought with me
today is from a staff member as well. This appears to be an official
Census survey. It says it is from the Federal Records Service Cor-
poration, Do not fold, and its a Washington address, and then
you open this up and its like a Census form. They want you to tell
them the names of your children, that this is a requirement, that
you have to send this information inFederal legislation requires
that all dependents born in this tax year must be listed by Social
Security number on your income tax return. Then it points out
 21

that your newborn child may not be registered. They are enclosing
this information.
Of course, it turns out not to be the Social Security at all, but
some scam way of getting information about your family, sent in
to this so-called Records Service Corporation.
Is this legal? Or should this be prohibited by law?
Mr. HUNTER. We would have to look at that particular piece to
ascertain whether it is legal or not, but there are many businesses
that attempt to sell services that are available free from the gov-
ernment, such as with regards to Social Security.
Another example of a disturbing, misleading piece was a com-
plaint that we received that appeared to be a jury notice, and it
was for a young man who was away at college. It was received at
his home, where his mother lived, and shethinking it was a jury
noticearranged for him to leave school to come home. It was sim-
ply a misleading piece to entice the recipient to open it.
Senator COCHRAN. Would any of the pending bills or proposed
changes in the law prohibit another example here, which I hap-
pened to receive? This looks like a Special Delivery piece of mail,
entitled Priority Express. The only other information on it is my
name. Again, this one says, Pay to the Order of William T. Coch-
ran. I knew they didnt know me well since they didnt use Thad;
they used the initial T. But thats my name and thats my address,
but it turns out again to be another solicitation for an equity loan.
They are willing to loan me $80,000 instead of the $50,000 offer
that I got from the other company.
Is this violative of any rule? If it isnt, should we make it viola-
tive of Federal law?
Mr. HUNTER. That is probably one of the most difficult types to
address. Without looking at it personally, I dont believe it is in vio-
lation. Its flattering because its probably a knock-off on Postal
Service Priority Mail; we appreciate the flattery but not the misuse
of that well-known product.
I think there will always be a gray area, even if we better define
what is prohibited in terms of techniques that are used to entice
people to open it.
Senator COCHRAN. This is another one of these scams on raising
money. On the back of it you have Ed McMahon and Dick Clark
for the American Family Publishers, Win now. This came to one
of my staff members, but it purports to be some kind of official
United States mailImportant, Confidential Documents En-
closed. So this is sort of a new twist. I had never seen one of these
before until my staff member showed it to me.
Is this the kind of thing, Mr. Attorney General, that you tried
to put a stop to?
Mr. BUTTERWORTH. Senator, I have not seen that one, but if it
has Ed McMahon and Dick Clark on it, Im sure we would look at
it.
Senator COCHRAN. On the back of it it says, Win now. Match all
three dollar amounts and you could win $250, $500, up to $1,000,
automatically. Break the bank, it says. Very enticing.
Senator Levin.
Senator LEVIN. Thank you very much, Mr. Chairman.
 22

First, Mr. Hunter, let me ask you about the Postal Services au-
thority and how it is implemented in this area.
If we impose requirements on how these solicitations can be
made and how they can be policed, we should find out in advance
whether they are practical. We have to make sure that whatever
we do really works in the real world out there. I am just won-
dering, in terms of the proposal that something that is inside an
envelope, if it contains something that is not mailable, how do you
know whether its not mailable until after you get a complaint
about it? By then most of the damage will be done, will it not?
Mr. HUNTER. Well, thats the issue that you were debating with
Senator Campbell, and youre right. Of course, the difficulty is that
on the other hand you dont want everything subject to inspection
because then you cross over into another constitutional concern.
So I think what you have to do in a situation like that is, you
do your best first to pass laws to try to clear up the ambiguity, and
thats a real challenge because youre up against some very skilled
marketing techniques. But then in terms of the enforcement, that
you have a quick way to learn when something like that is hap-
pening.
One of the ideas I have that Im working on with the Better
Business Bureau and othersand we have to wait for the Y2K
problem to be solvedis, Id love to see a national capability to
learn when complaints are received, when the individual Better
Business Bureau receives them, the FTC receives them, the Postal
Service receives them, the States receive them. What if we had an
ability to store that information in a common fashion and tap it,
so that when something happens and each of us receives, at first,
one, two, three or four, so we probably dont do much, because in
the scheme of things it has to reach a critical threshold so that we
say, My goodness, look, in the Nation there are a thousand of
those out there now, and then move in quickly with the tools that
you were advocating and I was advocating, the ability to go in with
that subpoena and immediately to determine whether or not its le-
gitimate, whether or not they have the means to fulfill the offer
that theyre purporting to make
Senator LEVIN. You dont currently have that power, is that cor-
rect?
Mr. HUNTER. Well, were asking for these subpoena powers.
Other agencies do; we do not, so that you could go in and require
proof that they are able to fulfill the claims that they are making;
and if they are not, then to invoke those other capabilities like
withholding the mail until it can be resolved, so that you stop the
bleeding, if you will, you stop people from being victimized. And of
course, in that regard were suggesting that some of those actions
because many companies use multiple addresses, that the action,
when you take it in one location, would apply everywhere.
Senator LEVIN. The current mail fraud statute, as I read it, on
the administrative side provides a civil penalty if there is an effort
to evade a postal stop order. Is there a penalty or civil fine of any
kind, directly for violating the existing law, for instance?
Mr. HUNTER. No, there is not.
Senator LEVIN. Now, is there any reason why we shouldnt add
thatIm not saying substitute it, but add itto what we already
 23

have in law? There are a whole lot of areas where we provide, for
instance, civil fines for violation of law; we dont have to have an
in-between step that you have to have an administrative pro-
ceeding, a stop order or some kind of an order, which in turn is vio-
lated, before we can impose a civil fine if there is a violation of the
underlying law or regulation.
Is there any reason why we should not provide that authority to
you to directly seek a civil fine?
Mr. HUNTER. Through the appropriate venues with the proper re-
view on the behalf of the defendant, no, I dont think there is.
Probably the thing that we debated the most in preparing for
this testimony was what I feel is an absence of tougher criminal
penalties in some of these areas. We, of course, are advocating
and you did, tooincreased civil penalties, but you may level those
against people that cant pay them because theyve already spent
the ill-gotten gain, or for whom its just not a sufficient penalty.
But if you also have the alternative of offering someone a limited
diet and recreational opportunities through a criminal prosecution,
it may have even more of a salutary effect.
I dont know. Wed need to work on that one.
Senator LEVIN. All right. Well, well work with you on that one.
I want to just ask our Attorney General and our Assistant Attor-
ney General here that question in terms of Florida and Michigan.
Is there an in-between step when you seek some kind of fine or
administrative fine or civil penalty, that there has to be an order
violated? Or can you go directlythrough a process, obviously; you
have to have a process before you can have a penalty or finebut
through that process, for the violation of your underlying statute?
Mr. BUTTERWORTH. Basically in this case, with American Family
Publishers, we just filed a civil case against them. We are involved
in discovery now and everything else. But in some cases, where
they are very flagrant, weve been able to work with the postal in-
spectors, in essence get stop orders, and they work very well with
us insofar as we know that a scam is occurring. They will take the
mail from the boxes, and we go through the appropriate procedures
in order to take down that operation, and a lot of times we do go
criminally against them.
But it would help, as Mr. Hunter was saying, it would help us
as attorneys general in working with the postal authorities.
Senator LEVIN. All right. So were talking about a couple of
things. One is being able to go directly for civil penalties, as well
as strengthening your criminal penalties and whatever civil pen-
alties we provide, directly, or for violation of a stop order. Is that
correct?
Mr. BUTTERWORTH. Yes. And again, I think the biggest challenge
is going to be how we word what is prohibited, and of course, there
we need to hear from the third panel, the Direct Marketing Asso-
ciation, because hopefully you receive some agreement that legiti-
mate members of the industry participate in so that we arent
fighting in a gray, ambiguous area with regards to whatever law
there is.
Senator LEVIN. All right. Thank you.
Mr. PRUSS. In MichiganI should know the answer to this ques-
tionis there a requirement for an in-between step, an inter-
 24

mediate step, before you can seek either a civil fine or an adminis-
trative penalty or civil relief against someone who violates Michi-
gan law?
Mr. PRUSS. Not really, Senator Levin. Our primary enforcement
vehicle is the Michigan Consumer Protection Act, and anything
that confuses a person with respect to their legal rights and obliga-
tions and duties and so forth is a per se violation of that act, and
we can proceed in court for civil penalties, which arent very high
unless the violation is knowing and persistent, in which case its
$25,000. But not per diem, necessarily, and not per event. Thats
ambiguous and unclear.
There is, however, a notice procedure. Before we file in court we
are obligated to file what is called a Notice of Intended Action,
an attempt to work this out consensually with the party. Absent
that agreement, however, we can proceed directly to court.
Senator LEVIN. Thank you. Thank you, Mr. Chairman.
Senator COCHRAN. Thank you, Senator Levin.
Senator Collins.
Senator COLLINS. Thank you very much, Mr. Chairman.
Mr. Hunter, I am particularly concerned about the government
look-alike mailings. Senator Cochran held up the example that he
received at home, and when I am looking at it more closely I notice
at the bottom it says, Buy and hold U.S. Savings Bonds. It has
an eagle. Its the same color envelope that our expense reimburse-
ment checks come in.
I also look at what Publishers Clearinghouse sends. The return
receipt card is so similar to the legitimate return receipt card that
the Postal Service usesits a different color, but other than that,
its set up in an extremely similar manner.
Similarly, the postcard which I brought up first, which fortu-
nately you had a blown-up version of, that was sent to me by my
constituent, Urgent Delivery, Official business, U.S. Govern-
mentthose words, used over and over again. And I want to read
to you what my constituent wrote to me. She said, This is the first
time that I have known that the U.S. Government is holding
money that belongs to me, and all I have to do is to send in less
than $10 and I can get my money. This is outrageous. This really
troubles me. And I know that you quickly and effectively issued a
cease and desist order to stop this individual and to order him to
make refunds, but is that all were doing? Shouldnt we at least im-
pose a fine? Shouldnt we have a civil penalty process that the
Postal Service can undertake up front, rather than only if he vio-
lates your order?
We just need to be much tougher on this. The reason people are
answering is they assume that it must be legitimate, because how
could someone do this, otherwise? How could they get these offers
in the mail that look so official, that have U.S. Government on
them? People understandably assume that were protecting them.
Id like to know, did anything else happen to this individual,
other than his being ordered to give back the money?
Mr. HUNTER. Well, I think youre getting to the essence of what
I was talking about and some of the proposals were making. I
think some of these civil and administrative procedures are not
tough enough. So I agree; you have expressed it more articulately
 25

than I could, and the three of us welcome you as the most articu-
late member of this panel. [Laughter.]
Senator COLLINS. But in this particular case, was there any fine
imposed by anybody that youre aware of, by State government or
by the FTC or
Mr. HUNTER. Not that Im aware of, no.
Senator COLLINS. See, that really troubles me, because that
means that the chances of your getting off scot-free, or simply just
being ordered to refund the money and that being the only penalty,
is very troubling. There has to be more of a penalty for deliberately
deceiving people, like this woman from Machiasport, Maine, into
sending money. There has to be more of a penalty than just telling
the deceptive individual or company, Give the money back.
I would hope that all of us who are concerned about this issue
can join together and work with you and your colleagues at the
State level to figure out how we can toughen the laws so that there
will be some sort of deterrent up front that will discourage people
from engaging in these practices.
Mr. HUNTER. We would very much welcome that. Too often peo-
ple start new schemesI mean, recidivism in this area is a prob-
lem. Its just profitable enough; they make enough before we shut
them down that theyre enticed to do it again.
Senator COLLINS. The final comment I will make is that I suspect
you also see that once you shut down one scam, that the individual
pops up somewhere else with a different scam. That certainly is the
pattern in a lot of telephone fraud cases, and also securities scams,
which Ive held hearings on. Its so frustrating to see, for example,
a rogue broker who has ripped off elderly people and essentially
stolen their savings be discharged by his brokerage firm, and then
pop up and do business with another one.
I just think we need to be much tougher and make sure that this
deception doesnt pay.
Thank you, Mr. Chairman.
Senator COCHRAN. Thank you, Senator, for your excellent com-
ments. I think you have shown us the way, and that is that we
ought to work together to try to put before the Senate a plan and
a strategy reflected in legislation to toughen up these laws. We
need to put a stop to some of these scams and these fraudulent
practices. Theres no tellingand we dont knowhow much money
it is costing the American people and how much heartache and dif-
ficulty families are suffering because of these activities that we
need to do something about. Thank you very much.
Senator LEVIN. Could I just ask one additional question?
Senator COCHRAN. Sure.
Senator LEVIN. I will be proposing specific fines and penalties,
administrative fines and penalties legislation, so that we dont have
to go through this extra step which seems to me to be unnecessary.
To go through a whole step to get an order, which you then have
to prove is violated, before you can impose a fine or a penalty is
just too big a loophole.
So what Ill be proposing will be at least the option of going di-
rectly to the fine or the penalty without having to go through that
step, so that you dont have to have an extra and unnecessary
stepunless you choose to take it, for whatever purpose you might.
 26

But part of that proposal relates to the questions of, what is a

violation? Right now, $10,000 per violation, to me, is far too weak.
We will be toughening that $10,000 provision significantly. But
what is a violation? If you send out 100,000 deceptive letters, is it
one violation or 100,000 violations? I think its 100,000 violations.
Mr. HUNTER. It would be very good to make that intent very
clear as you draft that legislation, whether its each piece of mail
or each mailing
Senator LEVIN. Well, I intend to do that, because if there was one
deceptive letter sent to somebody that resulted in that person being
defrauded, hopefully you would go after that person who sent that
deceptive letter. One letter is enough to trigger our law.
Well, if there are 10,000 letters, there ought to be 10,000 viola-
tions. The only way were going to deter these guys, it seems to me,
is if we let them know that theyre not going to profit from their
deception. Its the only way to stop them. Theyre in it for profit.
We have names there that are well-known and still trusted by peo-
ple despite all the deceptions which theyve helped to perpetrate.
We have to stop it by going after the profit, taking the profit out
of it, and it seems to me we cant any longer define a violation as
sending out 1 million pieces of mail that are deceptive. Thats a
million violations to me, and I intend to make it clear that every
letter that is deceptive, that violates our law, constitutes a viola-
tion in and of itself.
Mr. HUNTER. I like your thinking, and I also like your thinking
that the losses dont need to build to a certain point, that there is
a certain level of damage before action is taken. So I appreciate
that.
Again, the biggest challenge is what is prohibited, and how do we
best word this? But I am sitting here pinching myself, wondering
if Im asleep. Im not used to hearings in which there is so much
agreement, so I appreciate this and look forward to working with
you.
Senator COCHRAN. Thank you very much for your assistance. We
appreciate it, Mr. Hunter, and the Attorneys General who have
been here with us today, thank you very much.
Our next panel is Richard Barton, who is Senior Vice President
of the Direct Marketing Association, and Dr. William Arnold from
Arizona State University. We thank you for being here today to
help us understand what the problems are and what some of the
possible solutions will be for dealing with this ever-growing crisis
that we have in our country.
Mr. Barton, we have a copy of your statement. We will have it
printed in the record in full. We encourage you to make such sum-
mary comments from that statement that you think are appro-
priate. You may proceed.
STATEMENT OF RICHARD A. BARTON,1 SENIOR VICE
PRESIDENT, DIRECT MARKETING ASSOCIATION, INC.
Mr. BARTON. Senator Cochran, Senator Levin, and Senator Col-
lins, I was going to say that I am very pleased to be here to testify
before you. Ill have to amend that a little bit and say, I think Im
1 The prepared statement of Mr. Barton appears in the Appendix on page 82.
 27

very pleased to be here to testify before you to discuss with you the
Direct Marketing Associations members and the legitimate sweep-
stakesand the fraudulent sweepstakes, which we really want to
make a clear, fine line distinction between the two when we are
discussing that today, and what we as an industry can do to re-
solve both the problems that weve been discussing about fraudu-
lent sweepstakes, defrauding people, and about what we consider
and we can discuss this later oninappropriate or bad responses
to what we consider legitimate sweepstakes, and what we can do
to reduce those, also.
First, a short description of the Direct Marketing Association. We
are a trade association with 4,100 members internationally, 3,700
domestic corporations, involved in every form of direct marketing
not only mail, but also telephone, growing marketing on the Inter-
net, and any kind of direct response marketing. We estimate
through WEFA studies that total direct marketing comes to about
$1.2 trillion in terms of total revenues, and about $390 billion of
thatthese are not sweepstakes, Senator Levinabout $390 billion
of that, however, is through the mail. So we are dealing with what
we consider a significant segment of the American economy, of
which the sweepstakes are a part; not $390 billion, but an impor-
tant part that we would like to discuss with you.
Every fact that we have been able to put together over the past
30 or 40 years or so of legitimate sweepstakes shows that people
like them, that they respond to them, and that in most cases they
respond to them in a positive way. We estimate that probably more
than a billion sweepstakes promotionslegitimate sweepstakes
promotionsare sent out every year. It may even be more than
that; we dont have precise numbers, but its a lot.
Roper Surveys indicate that 29 percent of all American adults re-
spond to one sweepstakes a year, at least one sweepstakes a year,
and some of them respond to even more. Thats 29 percent, or
about 55 million Americans. Of those, about 38 percent of the 29
percent made a purchase by responding to the sweepstakes, and 62
percent did not make a purchase.
And finally, just to give you some idea of the significance of this
to the economy, we estimate that approximately one-third, for ex-
ample, of all magazine subscriptions in the country are sold
through sweepstakes promotions.
We recognize with you definitely that the series of problems that
you are talking about are of great concern to us. The first is that
fraudulent sweepstakes are a growing problem, and they are sim-
ply a growing problem because of the popularity of those legitimate
sweepstakes, and there are many knock-offs of the current legiti-
mate sweepstakes. In fact, the Michigan Attorney General men-
tioned one which involved the Publishers Clearinghouse, which in
fact was a fraudulent scam knock-off of Publishers Clearinghouse
that was making the telephone calls. But we are very concerned
about these fraudulent outfits because not only do they defraud
people and cause people a lot of money, but they also cast asper-
sions upon a legitimate industry.
I have to emphasize throughout this entire conversation that
were having with you that the hallmark or the actual cornerstone
of successful direct marketing is the trust of the American public,
 28

because were dealing at arms length with the process. You dont
go into a store and talk to an owner or a clerk whom you know;
youre dealing with an arms length process, and it is absolutely es-
sential that people trust the process, trust us, and we have been
very supportive of legislation and activities on the part of many of
the people who are here today to try to eliminate fraud and even
questionable promotions which dont cross the line of fraud.
The fraudulent sweepstakes, as you point out, are often aimed at
the elderly. Legitimate sweepstakes generally are not aimed at
anybody except a broad cross-section of the American public. They
often look like legitimate sweepstakes to the point that they even
copy the logos in many cases, butand this is a very big butin
all cases, in one way or another, the fraudulent sweepstakes re-
quire some sort of payment before you can receive a prize or what-
ever theyre offering, and that is absolutely not the case with legiti-
mate sweepstakes. If anyoneand we use this in all of our lit-
eratureis asked to pay to receive a prize or a consideration from
a sweepstakes promotion, that promotion is illegal, is a scam, and
should not be responded to in any way other than to turn materials
over to law enforcement officials.
This association, certainly in the 20 years that Ive been associ-
ated with it and longer than that, has been involved in many ac-
tivities to fight fraud. We deal on an almost daily basis with the
Chief Postal Inspector, Ken Hunter, and his people in the Postal
Inspection Service. We deal very closely with the Federal Trade
Commission, with the State Attorneys General, and in what is usu-
ally a positive relationship with other law enforcement agencies. In
fact, I have a pamphlet here, Sweepstakes Advertising: A Con-
sumers Guide, which is a piece that the Direct Marketing Associa-
tion sponsors in conjunction with the Postal Inspection Service to
describe how to spot fraudulent sweepstakes operations and what
legitimate sweepstakes are all about.
We also workand Im going to make an offer today to increase
that work, including with youwith consumers organizations,
such as the National Consumers League, on a regular basis; the
National Fraud Information Center, which is a very growingly im-
portant method of fighting fraud; and the Council of Better Busi-
ness Bureaus.
We also have an Ethics Committee. In fact, we have two Ethics
Committees; I think were the only trade association in the world
that has two Ethics Committees. They consider cases against com-
panies or against promotions which people think are deceptive, are
unethical, and/or illegal. We have an extensive process in which we
confidentially hear cases against companies, and we make a very
strong effort within that process to resolve those differences, to get
the companies to stop their unethical promotions, that we would
consider unethical. In most cases we are quite successful with this.
It used to be a confidential process. The board has now agreed,
overcoming some problems with antitrust laws, that we are going
to begin to publicize that process, and in every case that we have
companies that do not agree to follow the ethical guidelines of the
association, we will publicize their names and even bring action
against them in appropriate cases, before our own board, to have
them dismissed from the Direct Marketing Association.
 29

Senator Levin and Chief Inspector Hunter were discussing the

possibility of stronger laws against fraud, and we have generally
the history of the association is to support stronger fraud laws. We
can discuss a little bit later the work that we did with the Postal
Inspection Service and with Congress in tightening up the laws
against government look-alike envelopes around 10 or 12 years ago,
I think it was, which we thought was important, and the difficulty
you might have in expanding that law. But we are in favor of
stronger laws to get more tools to the Postal Service and other law
enforcement agencies, such as the Federal Trade Commission, to
fight scams and frauds.
But we also think that there are a lot of laws on the books now,
and that we can have even more vigorous enforcement both by law
enforcement agencies and also by consumer organizations and our
own association to more vigorously fight fraud.
Now, let me make a few points here about what I am going to
call legitimate sweepstakes. The legitimate sweepstakessome of
the companies which youve been discussing here todayalways,
there cannot or there certainly should not be any deviation from
this, certainly as far as our code of ethical business practice, which
I have here and which has been available to the Subcommittee
never require a purchase to win. If there is any sweepstakes that
requires a purchase to win and does not say that they dont require
a purchase to win, it is not a legitimate sweepstakes. There is full
disclosure in all sweepstakes that a person has not necessarily
won. We can discuss and argue over sizes of type and placement,
which is a fine thing to do, but it should be very clear to the Amer-
ican public and the people here that a person who receives a prize
notice has not necessarily won that prize.
Also, and this can be proven by statistics, that the people who
do not have equal chances as people who do order to win sweep-
stakes. In fact, as weve shown here today and can show anywhere,
most people who win sweepstakes prizes do not order from the
sweepstakes companies.
Now, that being said, I want to underline here that this associa-
tion and the members of the association and the companies we
have been discussing are very concerned about the comments that
were brought up by the two Attorneys General and by the Mem-
bers of the Subcommittee about, franklyits true, we do consider
most of the highly-publicized cases of people who have been hurt
by their response to these sweepstakes, by what we would call in-
appropriate responses to the sweepstakes. Not all, but a lot of them
are. And were dealing with a situation which, as a matter of fact,
frankly, concerns us very much and baffles us a little bit, because
it should be clear that in fact people dont have to perform in the
way they dofor example, get on airplanes and fly down to Tampa,
or to make a payment which would be illegal to get a sweepstakes,
or to buy huge amounts of material in order to enhance their
chances to win. We think that some people are actually misled, per-
haps, by some of the promotions that we do, and we need to look
at those carefully to be sure that in fact they do not mislead people,
without affecting the important advertising message of those
sweepstakes promotions and the advertising message in general.
 30

But we are very concerned about that. We believe, and we came

to a conclusion some months ago, that the industry needs to make
a redoubled effort to work not only with law enforcement officials,
but also with the Congress and with our own members and with
the companies in order to be able to assure, as much as we can pos-
sibly assure, that people are not misled and people do not inappro-
priately respond to legitimate sweepstakes.
Butand this is a big butwe think that the proposed legisla-
tion, and were talking about Senator Campbells S. 2141, which
weve discussed with him at some length, is not the answer. Im not
rejecting all the other proposals that have been discussed here from
the Postal Inspection Service and from Senator Levin. Its quite
possible we can support those, or some of those, although I would
have to go back to our people and see what we can do with that.
But the proposed legislation very simply says that in very large
type you will have on the front of the envelopeand on the first
page, I believe it is, of the material in the envelopevery large
type, which is 16-point type inside, and Ive forgotten what it is on
the front of the envelope, saying something to the effect that you
havent necessarily won. That is absolutely true. We believe that
that should be clear in any kind of promotion, that you have not
necessarily won. But to do it the way that Senator Campbells bill
does it, we believe very strongly would reduce the sales response
to the sweepstakes to such a radical point that it would conceivably
put a lot of them out of business.
And its a very simple thing. This is almost an advertising tru-
ism: If you have on the front of an envelope any negative kind of
thingwe even look at it in view of certain colors, which are sort
of perceived as negativeany kind of major negative language,
they will not open the envelope. And opening the envelope is what
we have to get people to do before they will even consider the prod-
uct. It is the same concept as space advertising in the newspaper,
getting people to come into the store. This is getting the people to
come into our store, and if you have any kind of negative adver-
tisingnegative statements on the front; not even advertising, but
negative statements on the frontthe tendency will be that people
will not open the envelope. Even the Federal Trade Commission
recognizes that much can be resolved once you open the envelope;
the issue is clear.
The second thing is that while we completely agree that dis-
claimers must be clear, and it should be clear that a person has
not necessarily won, if you put that on the top of an envelope in
16-point typeand I think you can see in my testimony how large
16-point type is, and you saw some of it up there in terms of some
of the signs that we had up therethat at the top of the envelope
you will have the same negative thing. It would be like putting at
the top of a political advertising piece or a political letter that you
send out to get people to go vote, These are the views of the can-
didate and they may or may not be true, 16-point type across
there, and then youre not going to get your envelope opened, ei-
ther. And that envelope opening is going into yours and our store,
going to the voting booth.
If this is a matter of advertising, to dictate the kind and size of
type and the precise messagewhich is a negative messageon an
 31

envelope and inside in this nature, we think it would very, very

substantially reduce our spots.
Now, that being said, there are many other things, we believe,
that Senator Campbell and this Subcommittee are moving in the
right direction on, in expressing concern and trying to do some-
thing about many of the things that are happening. We are willing
to work with you all on language for any kind of legislation. And
more importantly, as I will describe, to close a strong industry ap-
proach to improve this situation.
What can we do? Well, Ive already outlined very briefly our cur-
rent ethics process. We are making a commitment here at this
hearing, right now, as an industry to do several things right away,
to move on as quickly as possible.
First, strengthening our sweepstakes guidelines, which are in-
cluded in our ethical business practice, to provide and require even
clearer explanations of sweepstakes programs and what they do
and do not do.
Second, in developing company programs to identify quickly high
activity respondents, such as weve been discussing here, so that
we can go to them and inform them that they need not buy and
that no purchase is necessary. In fact, some of our companies al-
ready do that, and to very good effect, I think, in many cases. And,
if necessarywhich it often would prove necessaryremoving
them from the mailing list. Someone here mentioned requirements
that people be removed from the mailing list. We have a national
program to do that, and its also going to be a requirement of our
members that they remove people from mailing lists when asked,
beginning in 1999, or they will not be able to be members of DMA.
So we think it would be appropriate to identify some of these high-
level respondents who are responding inappropriately and remove
them from our mailing lists, and discuss the issue with them.
We want to have a better program of training customer service
representatives in companies to identify problem cases; to work
with relatives, which we do sometimes; provide name suppression,
cancellations, and refunds, where necessary. We are committing
ourselves to developing a coordinated national consumer informa-
tion program to educate consumers about the operation of sweep-
stakes and how consumers can detect fraudulent sweepstakes. And
we are willing to serve as a clearinghouse for consumer complaints,
which we already do to a certain extent through our mail-order ac-
tion line about sweepstakes, and pass the complaints to law en-
forcement officials as we do already, and also to pass on the other
complaints, if necessary, to our Ethics Committees or to resolve
them on the spot, which is what we would prefer to do; and to es-
tablish a more effective relationship with the consumer organiza-
tions that we already have a relationship with to improve the infor-
mation that they have about legitimate and fraudulent sweep-
stakes.
The conclusion here, really, is that we are as concerned as you
are. You are in some ways, frankly, describing an industry of legiti-
mate sweepstakes that I am not familiar with because of the char-
acterization of this industry in rather unflattering terms as people
who are out to grab a dollar and do nothing else. Thats not the
industry that I work for, and it is also not an industry which in
 32

fact is going to succeed over a long period of time because people

will lose trust and confidence, and we want to build and maintain
that trust and confidence.
So we are very strongly interested in working with you, Senators
Levin, Collins, and Cochran, and Senator Campbell, in working out
solutions to these problems, in which we think a good bit can be
done by increasing our activities as an industry in ethical guide-
lines and consumer education.
Thank you, Mr. Chairman.
Senator COCHRAN. Thank you, Mr. Barton, for your testimony.
Dr. Arnold, Professor of Gerontology, from Arizona State Univer-
sity. Welcome. You may proceed.
STATEMENT OF WILLIAM E. ARNOLD, Ph.D.,1 DIRECTOR OF
GERONTOLOGY, ARIZONA STATE UNIVERSITY
Mr. ARNOLD. Thank you, Chairman Cochran, Senator Collins,
and Senator Levin. I guess Mr. Barton and I will be disagreeing
a little bit here in a few minutes over some of the things that have
been said, just to spice things up a little bit.
Im not going to read my remarks. I am going to make three
points. I have a couple of stories to begin with. I want to talk brief-
ly about the research that I did, and then make some recommenda-
tions.
I got this on Friday: Express Document, Rush Priority, Rush to
Addressee, Extremely Important. It has the eagle on there; maybe
we ought to put a tiger on it instead. That might slow things down.
And then some more Rush on the other side. No mention of the
name of the company that sent it; it turns out to be a mortgage
company that wants me to subscribe.
I got that catalog from Michigan, Senator, and I wondered if I
had won, so Im glad to know that youre working on that.
I got a call about 3 weeks ago on a radio program from a person
in Iowa whose mother lives in your State, and she was ready to
hop on a plane and fly to New York to collect her prize, but he was
fortunately able to talk her out of it.
Those are the stories. Weve heard lots of stories far bigger and
stronger than I can make, but I want to skip over to page 11 of
the paper that I have for you and talk about two pieces of research,
and I think you have a document in front of you that describes
what this study was all about.
Essentially, in the first study I asked seniors in three different
senior centers to respond to the statements, and the statements
that you have are there. I gave them the statement, Open at once.
Prize payment guaranteed to winners inside.
Senator COCHRAN. This is the document that youre referring to,
right here?
Mr. ARNOLD. Right. And its in black and white in the copies that
have been given to everybody else.
So they got that first statement, and I said, OK, how likely are
you to open that document if you just see that single statement,
Open at once, in red type? And 39 percent said they would open
it up, and another 61 percent said not likely.
1 The prepared statement of Mr. Arnold appears in the Appendix on page 89.
 33

So I asked then another question with the second statement that

says, Notice: Postmaster, the security of this package is guaran-
teed, and youve got that statement. Fascinating results; 57 per-
cent now said they would open it. The percentage increased when
the statement was there from the Postmaster, and I think that Mr.
Hunter stated very clearly why our seniors are responding the way
they do. They have trust and confidence in the Post Office, so they
read a statement like that and it suggests to them, This is prob-
ably OK to go ahead and open up.
I got another pieceand well be studying this very shortlythis
is something new I had not seen, tamper-proof, a piece of tape that
says If this seal is broken at time of arrival, please notify your
local postal authorities. Again, its the same kind of thing, appeal-
ing to the credibility of the Post Office. Quite frankly, I have not
opened it, so Im not even sure who it is from. But that was the
kind of thing that increased the willingness to open the envelope
if they saw it was from the Post Office.
The third was a warning similar to what Senator Campbell was
proposing. I put that on there, and I said, By itself, if you just saw
that on the envelope and nothing else, how likely are you to open
it? And the response was that 86 percent would not open the enve-
lope. So if we took Senator Campbells proposal and put that on the
envelope alone, then I think Mr. Barton is right, people would
probably throw it away.
The next study. I combined all three on an envelope that looks
like this, handed that to them, and then said, OK, tell me what
you notice first. And 78 percent said they noticed Open at once,
prize payment inside. Only 9 percent even noticed the statement
about the contents.
So I said, OK, then, given that data, how likely are you to go
ahead and open the envelope? What did they say? We had 78 per-
cent that ignored the contest and would say, Im going to go ahead
and open it; theres something in there for me.
Senator COCHRAN. You said, ignored the contest?
Mr. ARNOLD. They ignored the content of this message, that this
was a contest, their chancesI only put 80 million to 1; Ive heard
120 million to 1 would be more appropriate. You do not have to
playthat was ignored by 78 percent.
So whats the third and final point? It seems to me that legisla-
tion may work, but I think we need to do more in figuring out
where we place this if we allow this to be on there alone. Do we
put it on the back side, like a piece of tape, and say, This is a con-
test? Were going to do that research because we think we need
to do more. Maybe we need to put that in red and the other mes-
sages in the black and white.
So thats what were going to be doing by way of research.
The second suggestion is that maybe we need to define what it
means to have a sweepstakes. What does that mean to everybody
who responds to it?
Third, were going to be studyingnow that weve seen the
UnionGram, and there are others that we know are patently illegal
and should be stoppedwe want to study the content of those
versus the ones used by the legitimate marketing firms to see
where there are differences.
 34

Fourth, I think we need to look atas, again, Mr. Barton has

pointed outthe specific type size and placement, and weve seen
plenty of examples of things that we need to do there. But we need
to test that along with cognitive abilities, attitudes towards the
U.S. Government, because obviously if tampering is an issue, then
we have a great deal of respect so we watch the messages that we
get across.
And finally, I guess I would call forand what Ive heard a lot
of folks calling fora group getting together to decide what kind
of information we should have, what kind of enforcement we should
have, involve gerontologist around the country and communications
people who can look at that so that they can help you come up with
the most effective pieces of legislation.
Thank you very much.
Senator COCHRAN. Thank you, Dr. Arnold.
I showed some copies of correspondence that I had received and
my staff had received to the earlier panel, and I was curious to
know, Mr. Barton, whether your guidelines that you discussed for
the Direct Marketing Association would be violated by any of these
mailings that we received.
First of all, this governmentappearing to be a government
check, that came to me, whether there is anything in that, and one
of my staff members had one almost exactly like it. Both of these
turn out to be from loan companies. Theres no harm done, I guess,
if we dont take out the loan, but they both appear to be letters
from the government containing a government check, payable to
the addressee. Is there anything in your guidelines that would be
violated?
Mr. BARTON. I dont know, because that would have to be a mat-
ter of committee study and interpretation. The closer it gets to look
like an actual government envelope, the closer it comes to violating
our ethical guidelines. Of course, if you take an actual government
envelope, its illegal. Thats one of the things that we worked on.
So what Ive been saying is that it would at least be worth taking
a look at. I cant say here, right now, whether it would violate the
guidelines. However, I would point out, without defending what
that envelope looks like or whats on the front of the envelope, the
instant you opened it you knew what it was. In any direct mar-
keting contextand I think even the Federal Trade Commission
would say that a lot of hyperbole on the front of an envelope is re-
solved the minute you open it if it is in fact clear that it is not a
government check, which it is not, and that what it is is an offer
of credit.
But in terms of that specific envelope, I really would have to take
it and run it throughwhich is a quasi-legal process, our guide-
lines. Im not sure, frankly, whether or not the Committee has re-
cently taken up any of those. I will find out for you and give you
a written statement on it.
Senator COCHRAN. One other question I have about your guide-
lines relates to the enforcement. You mentioned that if someone did
violate the guidelines, that they could be dismissed as members of
the association. Do you have any other sanctions that are imposed
for violating the guidelines, other than just no longer being able to
be a member of the Direct Marketing Association?
 35

Mr. BARTON. Well, from this point on we will publicize it, even
if it doesnt come to the point of dismissal from the association. We
will make public the names of the companies which we have deter-
mined have violated the ethical guidelines, and distribute that in-
formation to the consumer organizations that we deal with, and it
will become public knowledge.
We think, certainly, for legitimate companies, that thats a sub-
stantial problem for them. But dismissal, frankly, is probably going
to be used more and more as a sanction, and it turns out that
thats a pretty good sanction because most of the people in this
business do not want to be looked on as pariahs. But thats really
the best I can say about that.
In terms ofthis is not exactly in terms of the ethics and the
lawalso we are starting a national program to require companies
to remove names from mailing lists when they are requested to,
and that would include the kinds of things were talking about
here, with peoples inappropriate behavior to sweepstakes, which
we would determine that their names should be removed from
mailing lists, and to use all the programs that we use for people
who ask to get off of mailing lists. That would be a requirement
for membership, and they would be dismissed, too, if they didnt do
that.
Senator COCHRAN. Dr. Arnold, in your judgment are those who
are vulnerable to deceptive and fraudulent practicescan they be
educated with tips and other advice in a way that would permit
them to be more likely to resist falling for some of these scams and
being duped or ripped off by them?
Mr. ARNOLD. Let me make two points on that. First, I hope so,
because Im in the wrong business if Im in education and we cant
educate folks.
But second, let me give you a specific. One of the things we dis-
covered in doing the second piece of research was that our seniors
didnt fully comprehend what bulk mail meant. I said, How was
it mailed to you? And they said, Well, it says U.S. postage. I
said, Well, what does that mean? Well, its bulky, and it came
from someone, so they did not distinguish between what would be
bulk rate, what would be first class, what might even be Priority
Mail. So I think thats an issue we could look at, and I think thats
part of the education.
The other point that I did not make, that perhaps we ought to
take off notices that are on letters and envelopes like this where
the Postmaster secures from tamperingmaybe thats doing more
harm than good by having that.
Senator COCHRAN. It legitimizes the mailing?
Mr. ARNOLD. And they see that the Postmaster approves of this
because its protected from tampering. Take that off, and the per-
centage that we got would be reduced to the Open at once.
Senator COCHRAN. Senator Levin.
Senator LEVIN. How many members are there of your associa-
tion?
Mr. BARTON. There are 4,100 companies.
Senator LEVIN. Theres a bankruptcy petition here which was
filed by some company called Direct American Marketers, Inc. Are
you familiar with them?
 36

Mr. BARTON. I know of them, yes. They are not members of ours.
Senator LEVIN. They operated underit looks to meabout 700
different names, one company.
Mr. BARTON. I know that they operated under a lot of different
names. I dont know which ones
Senator LEVIN. I made a quick count. It looks like about 100 per
page, and there are seven pages. I doubt that any one of them were
members of your association.
Mr. BARTON. No.
Senator LEVIN. If so, what sanctions would you have taken
against this kind of an operation?
Mr. BARTON. They were members of ours, Senator, and theyre
no longer members. We did have an ethics case against them.
There were recommendations about dismissal, and they left mem-
bership in the association.
Senator LEVIN. Before you dismissed them?
Mr. BARTON. I believe so. Thats a while ago. I believe so, yes.
Senator LEVIN. That will give you an idea, folks, of the way these
companies operate. These names, using the word award to begin
with Award Administrator for Disbursements Division, Award
Auditing Division, Award Claims Center, Award Claims Cen-
tre spelled differently, Award Disbursement Unit, Award Notifi-
cation Director, Award Notification Services, Award Payment
Determination Center, Award PaymentI mean, it just goes on
and on and on, page after page after page, one company using
about 750 different names.
I would like to make that part of the record.1
Senator COCHRAN. Without objection, so ordered.
Senator LEVIN. Mr. Barton, Id like to show you a chart here, if
you would. Could you put the chart up there for me?
I want to ask you whether or not, in your judgment, this chart
complies with your ethics requirements. I know that you have a
committee there that looks at these, but Id like you just to give
us your own personal opinion, not binding on your committee.1
Mr. BARTON. I cant even read the type. [Laughter.]
Senator LEVIN. Thats my point. I appreciate it. Next exhibit.
[Laughter.]
Take a look at the words, The judging is now final. Mr. Bruce
whatever his last name isis one of our $1,666,000 winners. 3
Now, Mr. Bruce, with his last name, is going to see that pretty
boldly. Here you are, one of our winners. I mean, my gosh, that will
get someones attention. But above that, it doesnt look like any-
thing; there are some very small words. Can you point those words
out? Above, on the official notificationjust point to them.
Mr. BARTON. On the official notification, above
Senator LEVIN. Yes, that little line above there. Keep going, high-
er, higher, higherlower, lower. There. [Laughter.]
There. You got it. Now, Im going to read that line to you that
nobody can find; even my staff member, who is an expert on this
subject, cant find the line.
1 The list of other names used by the debtor submitted by Senator Levin appears in the Ap-
pendix on page 165.
1 The Chart referred to by Senator Levin appears in the Appendix on page 171.
3 The exhibit referred to appears in the Appendix on page 172.
 37

If you have and return the grand prize winning number, well
declarethat little unreadable line makes this legal under current
law. Thats not my questionwere going to try to make it illegal
under new law, by the way. Im saying that right now. But under
current law, because that little unreadable line is there that says,
If you have and return the grand prize winning number, well de-
clarethen they go on to say, in type this big, the judging is now
final. Mr. Bruce so-and-so is one of our $1,666,000 winners.
Now, if that isnt deceptive, I dont know what in the hell is.
Mr. BARTON. Well, Im not going to sayI dont know whether
the Ethics Committee would find it deceptive or not deceptive. Its
on the edge. But it does sayso now were talking about size of
type, because it does say, If you have and return the grand prize
winning number, well declare, and it does say at the bottom, If
you have and return the grand prize winning number, we will offi-
cially declare it as confirmed, which is at the top of the piece on
the second page, I believe.
Senator LEVIN. But you see, your own ethics requirements talk
about size, and thats why I want to get to your own ethics require-
ments, because Article 3 says, Representations which by their size
are unlikely to be noticed
Mr. BARTON. Yes, but we dont determine what the size is. And
this would, frankly, probably be one of the things that we would
be working on in order to expand our ethical guidelines.
Senator LEVIN. Do you think that little thing there is likely to
be noticed? We cant even find it. My intrepid staff member, who
is an expert, cant even find it. She probably knows more about
that form than anybody else in the room.
Mr. BARTON. Well, in one way or another, millions of people do
notice it, or at least do know that they havent won.
Senator LEVIN. Im worried about the millions that dont notice
it, by the way. Im not worried about the few that are so used to
these scams that they look for the ways in which these hooks are
attempted to put into peoples hides.
Im just asking you, as a rational and reasonable human being,
in your judgment, given the location of that and the size of that,
is that likely to be noticed under your own guidelines? Because if
it is, your guidelines arent worth anything.
Mr. BARTON. I dont know what we would determine in our Eth-
ics Committee about the guidelines.
Senator LEVIN. Would you take that up with your Ethics Com-
mittee?
Mr. BARTON. Yes, I certainly would.
Senator LEVIN. How long would it take you to let us know?
Mr. BARTON. A month or two. They meet once a month, so give
me a little bit longer than that.
Senator LEVIN. All right, if you could do that.
Now, thats Article 3 of your ethics rules, Representations which
by their size and placement are unlikely to be noticed. Thats one.
Mr. BARTON. Right.
Senator LEVIN. Now if you could put up the official rules.
This is on the envelope that that thing came in. Would you say
that by the size of that, that they are unlikely to be understood or
read?
 38

Mr. BARTON. I think they would be unlikely to be read, frankly,

and one of the reasons you put official rules like thisI mean,
there are a lot of legal requirements, not in connection with this,
that you put official statements on pieces of paper, and theyre all
in very small type, because you dont want to take up a lot of space
from the message.
I dont know whether we would talk about putting that in bigger
type. I think that the important thing is not to have all the official
rules in large type. The important thing would be to make it clear
that in fact you have not necessarily won.
Senator LEVIN. Yes.
Mr. BARTON. And I think that that kind of language, which you
see on thousands of documents and legal documents of all kinds
not language, but size of typeI dont really think thats what
were talking about here. I think were talking about, is it going to
be clear to somebody that you have not necessarily won?
Senator LEVIN. Well, it says in your Article 25 that the terms
and conditions should be easy to read. Those are the terms and
conditions, one of which says no purchase necessary. By the way,
thats only because I have strong glasses on and read it 23 times;
thats the only way I can even find it. And theres another one hid-
den in there that talks about your odds on this thing, which I cant
even read now with my glasses on, but itswell, the prize bonus
here, it says that the first prize is $25,000. Thats the first prize,
$25,000.
This is what came in that envelope, Judging is now final, and
Mr. Bruce so-and-so is one of our $1,666,000 winners.
Mr. BARTON. I would have to look at that very carefully because
that doesnt make sense. I agree with you, it doesnt make sense.
Senator LEVIN. OK, it would be very helpful if your committee
could get back to us with that, plus some other exhibits which we
will give to youif the Chairman is willing to do thisto give to
Mr. Barton a number of these documents that we have used, and
ask them to get back to the Subcommittee with whether or not
the decision of their committee on whether or not these exhibits
that we are using here comply with their rules.
Finallyis that agreeable to the Chair?
Senator COCHRAN. Its certainly agreeable, and we hope you will
be able to help us with that.
Mr. BARTON. We will treat you as an official complainant.
Senator COCHRAN. Good. Thank you. I think you got more than
one.
Senator LEVIN. One final comment. Is there any reason why we
should not make your ethical guidelines law?
Mr. BARTON. Well, you will have to admit that they are awfully
vague to be put into law. [Laughter.]
And Im saying that in a positive way. Laws have to be very pre-
cise.
Senator LEVIN. Well, criminal laws surely do, but Im talking
about civil fines and administrative fines. And when you say here
that Offers should be clear, honest and complete so that the con-
sumer may know the exact nature of what is being offered, Rep-
resentations which by their size or placement are unlikely to be no-
 39

ticed, I think that may be clear enough for administrative and

civil fines.
But in any event, would you give us
Mr. BARTON. Let us look at it. You know, the changes in law that
you were discussing with Ken Hunter were things that I think that
we can look at and, probably, positively respond to, a lot of them,
and let us look at that, too.
Senator LEVIN. Good. Thank you.
I just have one question for Dr. Arnold and then Ill be done.
Your testimony was also very fascinating, I must tell you, be-
cause what it really is warning us of is that we can think were
really accomplishing something by writing a law, but we may not
accomplish it at all. For instance, that warning about the Post-
master here may have absolutely no effect if at the same time, or
in the same envelope, people read more prominently a red bold-
faced something which tells them something else. So we have to
really think through what we do and take into consideration how
clever some of these folks are in evasion. I mean, we thought we
passed a law in 1990, I believe, relative to government look-alikes.
That was our effort, yet the Chairman has brought out a whole
bunch of government look-alikes here, and others have, too. Sen-
ator Collins has. They are government look-alikes. We didnt suc-
ceed in 1990.
So we do have to take into consideration your expertise and that
of folks like you who have expertise in this area, and we would look
forward to your working with us as we attempt to tighten these
laws.
Senator COCHRAN. Thank you, Senator Levin. Senator Collins.
Senator COLLINS. Thank you, Mr. Chairman.
Mr. Barton, I was really disturbed by part of your testimony. You
said that a lot of the cases that were concerned about that have
been publicized were the resultand I wrote it downof inappro-
priate responses to sweepstakes. That statement really troubles
me because it indicates to me a blame the consumer mentality.
I dont think its unreasonable for someone who receives a sweep-
stake that says Mr. So-and-so, its down to a two-person race for
$11 million, you and one other person in Florida were issued the
winning number, etc., and whoever returns it first wins it all to
think that theyve won. I dont think thats an inappropriate re-
sponse. I think its a very logical response to a very deceptive, mis-
leading statement.
Mr. BARTON. We agree with you in general about that particular
promotion piece. That was part of our ethics process and it was
withdrawn, also with the Attorneys General and so forth, so I
would agree with you about that.
But while were talking about response, we definitely not only
dont want to blame the consumer because in fact the consumer is
a very important part of us, and we think theyre wonderful people.
But I really think youd have to say that when you spend $20,000
or $30,000 of money you dont have on a promotion, whatever it is,
whether its buying magazines or whatever, there is a problem
there, more than the fact that the person might have been deceived
by what we would consider a legitimate sweepstakes. We want to
reach people who are like that, to say that You dont have to do
 40

this, and there might be some other problems that we want to help
you with.
I dont want to sound condescending at all, but I think its pretty
clear from some of these examples that we have seen that they are
not average, normal responses on the part of people who do sweep-
stakes.
Senator COLLINS. But the fact is, this was set up to deceive peo-
ple because if you buy a magazine, your response goes to Tampa,
where the number is going to be drawn. If you dont buy a maga-
zine, the response goes to Georgia.
Mr. BARTON. Again I say, that promotion has been withdrawn.
Senator COLLINS. But this is so typical. The one I used in my
opening statement from my constituent in Portland says, You
were declared one of our latest sweepstakes winners and you are
about to be paid more than $830,000 in cash. It shouldnt be a de-
tective game for people to figure out whether or not they really
have won.
Mr. BARTON. No, it should not be a detective game, whether or
not they really have won.
Senator COLLINS. What Im really trying to ask is, what kind of
response are we talking about? If somebody just thinks they have
won and have done nothing, as bad as we think the promotion
might be, theres no harm done there; they just throw it away, or
say, Gee, I might have won. If they buy a magazine or two, then
that is not an inappropriate response, as I was talking about, and
in fact thats the kind of thing we dont want to happen because
we think it ought to be made clear.
Mr. BARTON. Youre right, it ought to be made clearthat in fact
they have not necessarily won.
Senator COLLINS. The problem is that it isnt just a small num-
ber of unsophisticated consumers. I know Dr. Arnolds research
shows that. Theres one report in Iowa in response to just the Pub-
lishers Clearinghouse Sweepstakes that showed 126 Iowans, nearly
three-quarters of them over age 70, spent $2,500 or more on maga-
zines in response to one solicitation.
Almost 2,000 Iowans paid the company more than $1,000 in 1996
and 1997. I agree with you that you cant save everyone from mak-
ing a mistake, but that assumes that theyve received a clear and
legitimate offer. Thats not whats happening.
Mr. BARTON. It assumes that they believed that they had to buy
somethingyoure assuming that they believed they had to buy
something to win the sweepstakes.
Senator COLLINS. Do you think they didnt believe that?
Mr. BARTON. No. Im not saying that I didnt think they didnt.
Im saying that to the extent that that happens, it shouldnt hap-
pen, and thats not what I was talking about. I was talking about
people who have garages full of stuff, that we talked about, that
are truly inappropriate responses. These people need to be helped
by us and by other people not to respond to sweepstakes like that.
In that kind of sweepstakes, there should be no reason whatsoever
that anybody would go in and spend $2,500or even $15for a
magazine that they didnt want to buy, if they believe that its
going to help them win the sweepstakes. And were committed to
working with you to be sure that that happens, and that to the
 41

best of our extent, that the industry presents promotions that are
not in fact deceptive in that way.
What I am saying in a sense here is that there is a gray area
in all of advertising of what you and I would define as deceptive,
and what is just strong hyperbole, and we need to find somewhere
where that line is, I guess, because there is a lot of strong adver-
tising that goes on in newspapers and magazines and so forth
which some people might consider deceptive and other people
might consider just strong selling tactics.
So what we want to do is provide an ability for the consumer to
make a wise choice, and we think most of them do. More than 60
percent of the people who respond to sweepstakes dont buy, and
those who win dont buy. So were willing to do that.
Our problem with Senator Campbells bill is that the require-
ment for the type and placement is so negative that we think that
it would just substantially reduce response all across the board, not
just from the elderly.
Senator COLLINS. Well, in some of these cases I would be happy
if the consumer threw it away because of what you call negative
information on the envelope, and what I would call truthful infor-
mation on the envelope. I think we would perhaps be saving some
consumers a lot of grief and financial loss.
I realize that you are committed to working with us on this, and
I hope that you will concede that the industry has a long way to
go to make sure that deceptive practices like these do not continue.
Mr. BARTON. Yes.
Senator COLLINS. I have just a couple quick questions for Dr. Ar-
nold.
Dr. Arnold, I want to follow up with you on the issue of who is
deceived. Its my understandingI dont know whether youre fa-
miliar with itthat the AARP, the American Association of Retired
People, has found that seniors are more likely to be victims, and
that its not necessary the isolated and ill-informed senior, but
rather that a sophisticated and well-educated senior citizen can
also be snared by this kind of deceptive sweepstakes or pseudo-gov-
ernment mailing. Are you familiar with that study? Is that accu-
rate?
Mr. ARNOLD. Yes. Im familiar with that, and the data that we
have supports the same thing.
Senator COLLINS. My final question that I want to ask you fol-
lows up on the excellent point that you made, that seniors are per-
haps more vulnerable because they trust government more; and
when they see something referring to the Postmaster on the enve-
lope, or Buy U.S. Savings Bonds, or its the color of a government
envelope, or it has an eagle on it, theyre more likely to think that
the government somehow has approved this or that its a legitimate
offer.
Is there also a similar factor at work with the use of respected,
well-known celebrity spokesmen to promote sweepstakes?
Mr. ARNOLD. The one thing that is standard in communication
is the notion of credibility. Thats something that weve known for
2,300 years. If you have someone who is highly credible as your
spokesperson and thats someone that they believe, then theyre
going to be more persuaded by it. Just as an aside I asked, Well,
 42

who should we get to speak against telemarketing and mail fraud?

And everybody among the seniors responded, Why, Hugh Downs.
So they are turning to another senior who is respected by that com-
munity to speak out against what some other folks are doing on the
other side.
Senator COLLINS. Thank you.
Thank you, Mr. Chairman, for an excellent hearing.
Senator COCHRAN. Thank you, Senator Collins.
Senator Levin, do you have any further questions?
Senator LEVIN. I just want to thank our witnesses.
Senator COCHRAN. Thank you especially to the Senators who
worked hard to prepare for this hearing. We appreciate the support
and assistance that they have provided, and the members of our
staff who have helped arrange and prepare for the hearing as well.
And to all of our witnesses, we thank you, the Attorneys General
and the Postal Service Inspector, and the other witnesses. We are
very grateful for your assistance in helping us better understand
the extent of this problem and what the options are for dealing
more effectively with it. We think it is time for reform, for tight-
ening up these laws and rules, and we are serious about doing
something about it. Senator Campbell has laid out a proposed
change in the law, the Honesty in Sweepstakes Act, which we have
considered at this hearing. There are other suggestions that the
Postal Service has made and that others have made, that Senators
on the Subcommittee have made. We are going to consider these
options.1
We appreciate the fact that there is an upgrading of the ethical
guidelines for the association that has already been undertaken,
maybe as a result of the initiatives that weve seen here in this
Subcommittee.
But we look forward to working with all of you to help make re-
form a reality and not just a promise.
The hearing is adjourned.
[Whereupon, at 4:47 p.m., the Subcommittee was adjourned, to
reconvene at the call of the Chair.]

1 GAO testimony, Issues Related to Honesty in Sweepstakes Act of 1998, S. 2141, submitted
for the record, appears in the Appendix on page 180.
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